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Economic Growth, Habit Formation, and Business Cycle

Wei-Bin Zhang

BizEcons Quarterly, 2020, vol. 10, 3-25

Abstract: The purpose of this paper is to demonstrate the existence of business cycles in a theoretical economic growth model with endogenous habit formation, wealth, and preference change proposed. The model studies preference changes and habit formation in an extended Solow-Uzawa neoclassical development model with elastic labor supply. The study introduces the preference change based on the traditional literature on time preference and habit formation in the Ramsey approach to modelling behavior of households. It makes the model proposed by Zhang (2013) more robust with all the time-independent parameters generalized as time-dependent parameters. The model is simulated. Business cycles and preference oscillations are demonstrated under various exogenous periodic shocks.

Keywords: habits; endogenous preference; economic oscillations; economic structure; wealth accumulation. (search for similar items in EconPapers)
JEL-codes: O41 (search for similar items in EconPapers)
Date: 2020
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