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Habit Persistence, Money, and Overlapping Generations

Helle Bunzel

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper provides a comprehensive characterization of the stationary and non-stationary monetary equilibria in a two-period pure exchange overlapping generations model with multiplicative habit persistence preferences. Somewhat surprisingly, the upshot is that multiplicative habit persistence preferences do not affect the qualitative properties of the dynamical system in these models. In addition, the qualitative properties of models with subtractive and multiplicative habits are largely similar. Any possibility of cyclical fluctuations beyond periodicity two is also ruled out.

Date: 2006-01-01
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Published in Journal of Economic Dynamics and Control 2006, vol. 30 no. 12, pp. 2425-2445

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