The Habit Habit

John Cochrane

No 16105, Economics Working Papers from Hoover Institution, Stanford University

Abstract: I survey the macro-finance literature related to "By Force of Habit." I show how many models reflect the same rough ideas, each with strengths and weaknesses. I outline how such models may illuminate macroeconomics, by putting time-varying risk aversion, risk-bearing capacity, and precautionary savings at the center of recessions, rather than constraints on flows as in old Keynesian models, or intertemporal substitution and riskfree rate variation as in new Keynesian models. Throughout I emphasize unsolved questions and profitable avenues for research.

Pages: 58 pages
Date: 2016-03
New Economics Papers: this item is included in nep-pr~ and nep-mac
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Citations: View citations in EconPapers (9)

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