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.JEL Classification: E52, E63.

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In this paper, we show that Ricardian equivalence does not hold in a representative agent framework if one considers goods whose current consumption affect future marginal utilities. We find that, when the intertemporal elasticity of substitution changes over time, the timing of lump sum taxation has an asymmetric effect on current and future consumption. This in turn induces distinctive welfare consequences even if the government and individual budget constraints are unchanged in present value terms.

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This article explores the interaction between consumption externalities and limited asset market participation (LAMP) in the standard New-Keynesian model. We assess the performance of simple Taylor-type interest rate rules with respect to (a) equilibrium determinacy, (b) the model's ability to simultaneously generate output and inflation volatility similar to the pre-Volcker era, and (c) the model's response to a technology shock. We find that when individual preferences are affected by average household consumption (Aggregate Consumption Externality), stronger externalities increase the range of LAMP for which multiple equilibria arise even if the policy rule satisfies the Taylor principle. The interaction of LAMP and externalities can generate vast inflation/output relative volatility in line with the one observed in the data in the 1970s. According to our analysis, consumption externalities also affect the responses of endogenous variables to total factor productivity shocks. (JEL E4, E5)