Habit formation and sunspots in overlapping generations models
Fabrizio Orrego ()
No 2011-013, Working Papers from Banco Central de Reserva del Perú
I introduce habit formation into an otherwise standard overlapping generations economy with pure exchange populated by three-period-lived agents. Habits are modeled in such a way that current consumption increases the marginal utility of future consumption. With logarithmic utility functions, I demonstrate that habit formation may give rise to stable monetary steady states in economies with hump-shaped endowment pro les and reasonably high discount factors. Intuitively, habits imply adjacent complementarity in consumption, which in turn helps explain why income effects are sufficiently strong in spite of logarithmic utility. The longer horizon further strengthens the income effect. Finally, I use the bootstrap method to construct stationary sunspot equilibria for those economies in which the steady state is locally stable.
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
https://www.bcrp.gob.pe/docs/Publicaciones/Documen ... -Trabajo-13-2011.pdf
Our link check indicates that this URL is bad, the error code is: 555 Security Page
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2011-013
Access Statistics for this paper
More papers in Working Papers from Banco Central de Reserva del Perú Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit ().