Deep habits and the dynamic effects of monetary policy shocks

Morten Ravn, Stephanie Schmitt-Grohe, Martín Uribe () and Lenno Uusküla

Journal of the Japanese and International Economies, 2010, vol. 24, issue 2, 236-258

Abstract: We introduce deep habits into a sticky-price sticky-wage economy and examine the resulting models ability to account for the impact of monetary policy shocks. The deep habits mechanism gives rise to countercyclical markup movements even when prices are flexible and interacts with nominal rigidities in interesting ways. Key parameters are estimated using a limited information approach. The deep habits model can account very precisely for the persistent impact of monetary policy shocks on aggregate consumption and for both the price puzzle and inflation persistence. A key insight is that the deep habits mechanism and nominal rigidities are complementary: the deep habits model can account for the dynamic effects of monetary policy shock at low to moderate levels of nominal rigidities. The results are shown to be stable over time and not caused by monetary policy changes.

Keywords: Deep; habits; Monetary; policy; Price; puzzle; Inflation; persistence; Countercyclical; markups (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0889-1583(09)00062-8
Full text for ScienceDirect subscribers only

Related works:
Chapter: Deep Habits and the Dynamic Effects of Monetary Policy Shocks (2010)
Working Paper: Deep Habits and the Dynamic Effects of Monetary Policy Shocks (2009)
Working Paper: Deep Habits and the Dynamic Effects of Monetary Policy Shocks (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:24:y:2010:i:2:p:236-258

Access Statistics for this article

Journal of the Japanese and International Economies is currently edited by Takeo Hoshi

More articles in Journal of the Japanese and International Economies from Elsevier
Bibliographic data for series maintained by Catherine Liu ().