Consumption habits and labor supply

Liam Graham

Journal of Macroeconomics, 2008, vol. 30, issue 1, 382-395

Abstract: Models with habit formation in consumption have proved useful in understanding a number of macroeconomic features. The key finding of this paper is that, when households can use their labor supply to smooth consumption, habit formation worsens a dynamic model's response to both monetary and technology shocks. Some of the counterfactual implications of a model with habit formation can be rectified by introducing credit constrained households.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:30:y:2008:i:1:p:382-395

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