Deep Habits

Ravn, Morten O.; Schmitt–Grohé, Stephanie; Uribe, Martı́n

doi:10.1111/j.1467-937x.2006.00374.x

Cited by 326 publications

(428 citation statements)

References 23 publications

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“…For instance, it could be hypothesized that the consumption of the beneficiaries of social security transfers (presumably lying in the lower part of income distribution) is 3 As a matter of fact, there are also alternative ways to the same result. Ravn et al (2004) obtain a positive effect on consumption without credit-constrained agents, but assuming that the representative individual forms consumption habits on the individual variety in a monopolistic competition setting, rather than on aggregate consumption. Corsetti et al (2009) use spending reversals to get a positive response of private consumption to government spending shocks.…”

Section: Figure 1 About Herementioning

confidence: 93%

Consumption Multipliers of Different Types of Public Spending: A Structural Vector Error Correction Analysis for the UK

Marattin

Salotti

2010

SSRN Journal

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Abstract. The aim of this paper is to investigate the relationship between government spending and private consumption in the UK, for which there is scarce previous empirical evidence. We disaggregate public expenditure into three categories and search for the corresponding private consumption multipliers. Our analysis includes the estimation of a structural vector error correction model, using quarterly non-interpolated data for the period 1981:1 -2007:4. Initially, we estimate negative (and barely significant) effects on consumption of shocks to total public spending. Then, using the spending breaking down, we find that while shocks to public wages crowd-out private consumption as predicted by neoclassical models, shocks to the non-systematic component of social spending and government purchases of goods and services generate a positive reaction, so to crowd-in private consumption. Thus, the qualitative and quantitative dimensions of fiscal multipliers on private consumption change across different public spending categories. Our findings suggest that any empirical support of competing theoretical models on the issue would benefit from a disaggregation of government expenditure, rather than focusing on the aggregate measure.

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Section: Figure 1 About Herementioning

confidence: 93%

Consumption Multipliers of Different Types of Public Spending: A Structural Vector Error Correction Analysis for the UK

Marattin

Salotti

2010

SSRN Journal

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“…Notice that the consumption reference used in (2) di¤ers from the one used in Ravn et al (2006). The reason is the following.…”

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confidence: 97%

“…We adopt an extended version of the CES habit-adjusted consumption index, x j;t ; used by Ravn et al (2006):…”

Section: Consumersmentioning

confidence: 99%

“…Indeed, as pointed out by Ravn et al (2006), the deep habits assumption makes the price elasticity of demand procyclical. From equation (8), we can easily see that an increase in the level of x j;t raises the relative importance of the price-elastic term 1…”

mentioning

confidence: 99%

“…Also, it is negatively related to the discount factor q t;t+1 : Moreover, the deep habit assumption gives rise to two e¤ects, a price elasticity e¤ect and an intertemporal e¤ect. Ravn et al (2006) explain these e¤ects clearly .…”

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confidence: 99%

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Deep Habits and the Macroeconomic Effects of Government Debt

Aloui

2013

Macroecon. Dynam.

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Abstract:In this paper, we study the e¤ects of government debt on macroeconomic aggregates in a non-Ricardian framework. We develop a micro-founded framework which combines time-varying markups, endogenous labor supply and overlapping generations based on in…nitely-lived families. The main contribution of this paper is to provide a new transmission mechanism of public debt through the countercyclical markup movements induced by external deep habits. We analyze the e¤ects of debt-…nanced tax cuts. We show that the interest rate rises, entailing higher markups, which imply a fall in employment and consumption. It is particularily noteworthy that, even without capital, a crowding out e¤ect of government debt is obtained in the long run. However, the short-run expansionary e¤ect of debt-…nanced tax cuts, which would eventually be expected in a non-Ricardian framework, fails to occur. This is due to our ‡exible-price framework. On the other hand, we show that incorporating sticky prices in our model causes debt-…nanced tax cuts to have a short-run expansionary e¤ect while preserving the long-run contractionary e¤ect. JEL Codes : E63; E52Keywords : Wealth E¤ects, Fiscal Policy, Public Debt Shock, Deep Habits, Overlapping Generations, Monopolistic Competition. 2 Non-T echnical SummaryThe recent economic crisis in Europe and United States has induced many governments to intervene to …ght the recession. The active use of …scal policy has revived the old debate on the impact of government spending and debt on economic activity. In order to analyze this issue the failure of Ricardian equivalence is required, as otherwise …scal policy is neutral and government debt has no e¤ect on macroeconomic aggregates. In this paper, the Ricardian equivalence breaks down because of the overlapping generations structure of our model.Traditionally it is suggested that an expansionary …scal policy has a positive e¤ect on aggregate demand in the short run but negative e¤ects in the long run due to the crowding-out e¤ects on investment. From the theoretical point of view, can we have a model, without capital and default risk, capable of reproducing the short-run expansionary e¤ect of public debt, while preserving the long-run negative e¤ects?In this paper we analyze the e¤ects of public debt change in a nonRicardian framework without capital, with endogenous labor supply and time-varying markups. We …nd that a tax cut …nanced by government debt entails a fall in consumption and employment both in the short run and in the long run when prices are ‡exible. Notice that the long-run crowding out e¤ect on output is preserved even without capital. However, we do not …nd the traditional short-run expansionary e¤ect on output and consumption. On the other hand, when prices are sticky, the short-run expansionary e¤ect is obtained. So this paper o¤ers a micro-founded general equilibrium model, where government debt has a short-run expansionary e¤ect and longrun contractionary e¤ect which is not related to the capital. The novelty in this paper is the ...

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The policy mix in a monetary union: Who bears the burden of asymmetric shocks' stabilisation?

Mavrodimitrakis

2023

Int. J Fin Econ

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We utilise a standard reduced‐form neo‐Keynesian model in a monetary union, in which the monetary authority and the fiscal authorities strategically interact, to explore who, under alternative institutional arrangements (strategic and fiscal regimes) and shocks' configurations, bears the burden of asymmetric shocks' stabilisation. We show that in the core/periphery fiscal regime, described by an asymmetry in the sequence of moves between the core and the peripheral member‐states, asymmetric shocks pass through at the union level to the inflation rate and the output gap when there are strategically significant spill‐over effects and the monetary policy's and fiscal policies' instruments are not perfect substitutes in the stabilisation process. The monetary authority reacts to asymmetric shocks, but does not succeed in fully offsetting them. The first best implies the coordination of fiscal policies. A second best embraces the fiscal leadership strategic regime (as a form of implicit coordination), when there are strong interconnections in the union, or the use of policy instruments by the fiscal authorities that directly decrease inflation when fiscal policy is expansionary, such as taxes, production subsidies or public investment, when there is a strong cost channel of monetary policy.

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Deep Habits

Cited by 326 publications

References 23 publications

Consumption Multipliers of Different Types of Public Spending: A Structural Vector Error Correction Analysis for the UK

Consumption Multipliers of Different Types of Public Spending: A Structural Vector Error Correction Analysis for the UK

Deep Habits and the Macroeconomic Effects of Government Debt

The policy mix in a monetary union: Who bears the burden of asymmetric shocks' stabilisation?

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