Consequences of Modeling Habit Persistence

Luca Bossi and Pedro Gomis-Porqueras

No 701, Working Papers from University of Miami, Department of Economics

Abstract: In this paper, we study the stationary and non-stationary equilibria of a deterministic, pure exchange, two-period overlapping generations model with habit persistence. We show that preferences with multiplicative habits can lead to quite different equilibrium outcomes compared to subtractive ones. The two most commonly adopted habit specifications can differ in terms of homotheticity, gross substitutability, and uniqueness of equilibria. We illustrate these differences in terms of steady state equilibria, as well as local dynamics.

Keywords: Multiplicative and subtractive habit persistence; multiple equilibria; equilibrium dynamics (search for similar items in EconPapers)
JEL-codes: E52 E63 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2008-09-27
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Citations: View citations in EconPapers (4)

Published in Macroeconomic Dynamics, 2009

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https://www.herbert.miami.edu/_assets/files/repec/wp-0701.pdf (application/pdf)

Related works:
Journal Article: CONSEQUENCES OF MODELING HABIT PERSISTENCE (2009)
Working Paper: Consequences of Modeling Habit Persistence (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:mia:wpaper:0701

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