Dennis, R. (2009) Consumption habits in a New Keynesian business cycle model. Journal of Money, Credit and Banking, 41(5), pp. 1015-1030. (doi: 10.1111/j.1538-4616.2009.00242.x)
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Abstract
Consumption habits have become an integral component in new Keynesian models. However, consumption habits can be modeled in a host of different ways and this diversity is reflected in the literature. I examine whether different approaches to modeling consumption habits have important implications for business cycle behavior. Using a standard New Keynesian business cycle model, I show that, to a first-order log-approximation, the consumption Euler equation associated with the additive functional form for habit formation encompasses the multiplicative function form. Empirically, I show that whether consumption habits are internal or external has little effect on the model's business cycle characteristics.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Dennis, Professor Richard |
| Authors: | Dennis, R. |
| College/School: | College of Social Sciences > Adam Smith Business School > Economics |
| Journal Name: | Journal of Money, Credit and Banking |
| Publisher: | Wiley |
| ISSN: | 0022-2879 |
| ISSN (Online): | 1538-4616 |
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