Habit Formation And The Transfer Paradox

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 1 We are grateful to Gregory Bauer, Leonald Cheng, Charles Johnston, Atsushi Kajii, Kazuo Mino, Akihisa Shibata, and the participants of the 7th International Meeting of the Society for Social Choice and Welfare (Osaka, Japan), the 79th WEAI Conference (Vancouver, Canada), the 57th IAEC meeting (Lisbon, Portugal), the JEA Spring meeting (Meiji-Gakuin University, Tokyo), and the seminars at Kyoto, Osaka, and Ritsumeikan Universities. We appreciate financial supports from Grants-in-Aid for Scientific Research (C No. 1553021) from the Japan Society for the Promotion of Science. Terms of use: Documents in2 Corresponding author: S. Ikeda, The Institute of Social and Economic Research, Osaka University, Mihogaoka, Ibaraki, Osaka 567-0047, Japan. Telephone: 81-6-6879-8568, Facsimile: 81-6-6878-2766, Email: . 3 I. Gombi, The Faculty of Economics, Ritsumeikan University, Kusatsu, Shiga 525-8577 Japan. Telephone: 81-77-561-4840, Email: . MSO-04-09-02Abstract Economic interdependence of heterogeneous habit forming consumers is examined by using a two-country model. Due to endogenous interest rate adjustments, consumption-habit dynamics in one country are affected by the other country's habits and preferences. To characterize the interactive dynamics, we construct an aggregate world felicity function from individual countries' felicity functions and introduce a global aggregate habit capital, defined as the sum of individual countries' habit capitals. External indebtedness depends crucially on international differences in habit-adjusted disposable income less habitual living standard. The international average of, and difference in, the strength of habit formation play a key role in macroeconomic adjustment and the effects of fiscal policies. An increase in fiscal spending in one country can make that country better off, and the neighbor worse off, due to intertemporal terms-of-trade effects. JEL Classification Numbers: F41, D90.

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“…7 6 We could consider three types of shocks: a shock that affects both of the BB 0 and SS 0 schedules in Figure 2 (e.g., an increase in fiscal spending in country H); one that shifts the BB 0 schedule, leaving the SS 0 schedule (e.g., an income transfer between the two counties, −dy = dy * ); and one that shifts the SS 0 schedule, leaving BB 0 unchanged (e.g., productivity shocks dy * in country F). For the effects of income transfers, see Gombi and Ikeda (2003). The effects of productivity shocks dy * in country F can be obtained from the effects of fiscal spending in country H by replacing country H's variables with country F's.…”

Section: Consumption and Net Foreign Assetsmentioning

confidence: 99%

Habit Formation in an Interdependent World Economy

Ikeda

¹

,

Gombi

²

2004

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 1 We are grateful to Gregory Bauer, Leonald Cheng, Charles Johnston, Atsushi Kajii, Kazuo Mino, Akihisa Shibata, and the participants of the 7th International Meeting of the Society for Social Choice and Welfare (Osaka, Japan), the 79th WEAI Conference (Vancouver, Canada), the 57th IAEC meeting (Lisbon, Portugal), the JEA Spring meeting (Meiji-Gakuin University, Tokyo), and the seminars at Kyoto, Osaka, and Ritsumeikan Universities. We appreciate financial supports from Grants-in-Aid for Scientific Research (C No. 1553021) from the Japan Society for the Promotion of Science. Terms of use: Documents in2 Corresponding author: S. Ikeda, The Institute of Social and Economic Research, Osaka University, Mihogaoka, Ibaraki, Osaka 567-0047, Japan. Telephone: 81-6-6879-8568, Facsimile: 81-6-6878-2766, Email: . 3 I. Gombi, The Faculty of Economics, Ritsumeikan University, Kusatsu, Shiga 525-8577 Japan. Telephone: 81-77-561-4840, Email: . MSO-04-09-02Abstract Economic interdependence of heterogeneous habit forming consumers is examined by using a two-country model. Due to endogenous interest rate adjustments, consumption-habit dynamics in one country are affected by the other country's habits and preferences. To characterize the interactive dynamics, we construct an aggregate world felicity function from individual countries' felicity functions and introduce a global aggregate habit capital, defined as the sum of individual countries' habit capitals. External indebtedness depends crucially on international differences in habit-adjusted disposable income less habitual living standard. The international average of, and difference in, the strength of habit formation play a key role in macroeconomic adjustment and the effects of fiscal policies. An increase in fiscal spending in one country can make that country better off, and the neighbor worse off, due to intertemporal terms-of-trade effects. JEL Classification Numbers: F41, D90.

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“…The analytical model employs the two-county framework developed by Gombi and Ikeda (2003) and Ikeda and Gombi (2009). Those papers were concerned with the e¤ects of …scal policies under preference heterogeneity in habit formation, where the role of global habits in dynamic adjustment were assumed away by setting the initial holdings of net foreign assets to be zero.…”

mentioning

confidence: 99%

Global Habits, Habit Differentials, and International Macroeconomic Adjustment to Income Shocks

Ikeda

¹

,

Gombi

²

2010

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIn a two-country model with habit formation, we focus on interdependent macroeconomic adjustments to global and country-specific income shocks. Global habits and habit differentials play key roles in the global equilibrium dynamics, possibly nonmonotonic, and in the determination of international asset distribution. A country's steady-state holdings of net external assets rely on (i) weighted income difference in excess of habit differentials and (ii) global income in excess of global habits. Local income shocks have greater effects on the international asset distribution than global income shocks. With habit formation, positive income shocks lower the world interest rate, thereby harming the creditor country and benefitting the debtor country due to the intertemporal terms-of-trade effect. In contrast to the case of trade theory, this intertemporal immiserizing growth effect is more likely to be caused by global income shocks than by country-specific income shocks. JEL Classification Numbers: F41, D90.

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Habit Formation And The Transfer Paradox

Cited by 8 publications

References 29 publications

Habit Formation in an Interdependent World Economy

Habit Formation in an Interdependent World Economy

Habit Formation in an Interdependent World Economy

Global Habits, Habit Differentials, and International Macroeconomic Adjustment to Income Shocks

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