 Multiple BGPs in a Growth Model with Habit PersistenceJournal of Money, Credit and Banking, 2007, vol. 39, issue 1, 25-48 Abstract: This paper establishes multiple balanced growth paths in an otherwise standard, competitive growth model without externality or distortions and with households' preference dependent upon how his/her consumption compares to a habit stock formed by his/her own past consumption. The key feature in our model is that consumption forms habits in combination with existing habits. This model establishes multiple equilibria because habit persistence induces an internal, intertemporal complementarity effect among consumption flows, with current consumption reinforcing future consumption. As a result, there exist two balanced-growth paths, with one path exhibiting low consumption and habits and high economic growth, and the other path exhibiting high consumption and habits and low growth that is not necessarily a development trap. Both steady states are saddles, but global indeterminacy arises where a high balanced growth path co-exists with a low balanced growth path where the two equilibrium paths cannot be pareto ranked and history need not matter for the selection of the equilibrium path. Copyright 2007 The Ohio State University. Date: 2007 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:39:y:2007:i:1:p:25-48 Access Statistics for this article Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West More articles in Journal of Money, Credit and Banking from Blackwell Publishing |
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