Habit persistence and stagnation

Wataru Johdo

Economic Modelling, 2009, vol. 26, issue 5, 1110-1114

Abstract: Using a money-in-the-utility function model that incorporates habit formation in consumption, we consider the question of how allowing for habit formation affects the possibility of a persistent shortage of consumption. We then contrast the model without habits with a model with habits. The main findings of our analysis are that i) when the degree of habit formation is important, a high degree of habit persistence opens up the possibility of a shortage of consumption, and ii) in the steady state with stagnation, the equilibrium consumption in the model with habit formation is smaller than the corresponding consumption without habits.

Keywords: Habit; Stagnation; Money; Consumption (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:26:y:2009:i:5:p:1110-1114

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