Givens, Gregory (2013): Deep or aggregate habit formation? Evidence from a new-Keynesian business cycle model.
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Abstract
Habit formation is a fixture of contemporary new-Keynesian models. The vast majority assume that agents form habits strictly over consumption of an aggregate good, leaving open the question of whether it might be preferable to have them form habits over differentiated products instead–an arrangement known as deep habits. I answer this question by estimating a model that nests both habit concepts as special cases. Estimates reveal that the data favor a specification in which consumption habits are stronger at the product level than at the aggregate level. A mix of significance tests and simulation results indicate that including deep habits greatly improves model fit, most notably with regard to inflation dynamics.
Item Type: | MPRA Paper |
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Original Title: | Deep or aggregate habit formation? Evidence from a new-Keynesian business cycle model |
English Title: | Deep or aggregate habit formation? Evidence from a new-Keynesian business cycle model |
Language: | English |
Keywords: | Deep Habits, Nominal Rigidities, Inflation Persistence |
Subjects: | E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles |
Item ID: | 45204 |
Depositing User: | Gregory Givens |
Date Deposited: | 27 Mar 2013 22:16 |
Last Modified: | 02 Oct 2019 18:24 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/45204 |