Endogenous Growth, Habit Formation and Convergence Speed

Manuel Gómez

The B.E. Journal of Macroeconomics, 2010, vol. 10, issue 1, 32

Abstract: This paper analyzes the effect on the economy dynamics of alternative formulations of habit persistence in an endogenous growth model. The focus is on the impact on the convergence speed, which is the key determinant of the local dynamics. In contrast with previous numerical results, we show that the external-habits economy may converge at a higher, lower or equal rate than the internal-habits economy depending on the specification of the utility function. We also prove that the higher the strength of habits and the lower the speed of adjustment of habits to current consumption, the lower the convergence speed.

Keywords: habit formation; convergence speed; external habits; internal habits; endogenous growth (search for similar items in EconPapers)
Date: 2010
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DOI: 10.2202/1935-1690.1971

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