Habit Formation and the Gains from Price Stability

David Atkin

CESifo Economic Studies, 2012, vol. 58, issue 2, 373-384

Abstract: A counter-intuitive result from consumer theory is that consumers facing stable prices will benefit from a mean-preserving spread of those prices. This article explores a new explanation for why the common intuition that price volatility is undesirable may be correct: the presence of habit formation in consumption. If prices are fluctuating, and preferences depend on past consumption, in every period the most favored goods can also be the most expensive ones, with negative consequences for both welfare and nutrition. (JEL codes: E2, O1, D9, I15) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/cesifo/ifs019 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
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:oup:cesifo:v:58:y:2012:i:2:p:373-384

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

CESifo Economic Studies is currently edited by Panu Poutvaara

More articles in CESifo Economic Studies from CESifo Group Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().