Habit Formation, Catching Up with the Joneses, and Economic Growth

Alvarez-Cuadrado, Francisco; Monteiro, Gonçalo; Turnovsky, Stephen J.

doi:10.1023/b:joeg.0000023016.26449.eb

Cited by 156 publications

(155 citation statements)

References 32 publications

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“…3 More recently, this literature has been extended-particularly in terms of an analysis of the economy's transitional dynamics-by Alvarez-Cuadrado et al (2004), and Turnovsky and Monteiro (2007), who incorporate a time non-separable preference structure based on the fundamental work of Ryder and Heal (1973) on habit formation. 4 While these studies have contributed many insights to our understanding of the aggregate implications of status preferences, the RA framework employed by all these researchers is, nevertheless, restrictive: since all agents are identical, all differences between them are eliminated in the symmetric macroeconomic equilibrium.…”

Section: Introductionmentioning

confidence: 99%

Keeping up with the ageing Joneses

Fisher

Heijdra

2009

Journal of Economic Dynamics and Control

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In this paper we consider the implications of relative consumption externalities in the Blanchard-Yaari overlapping generations framework. Unlike most of the macroeconomic literature that studies this question, the differences between agents, and, thus, in their relative position, persist in equilibrium. We show in our fixed employment model that consumption externalities lower consumption and the capital stock in long-run equilibrium, a result in sharp contrast to the recent findings of Liu and Turnovsky (2005). In addition, we solve for the intertemporal path of the economy to investigate its response to demographic shocks, specifically, to permanent changes in the birth and death rates.JEL Codes: D91, E21

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Section: Introductionmentioning

confidence: 99%

Keeping up with the ageing Joneses

Fisher

Heijdra

2009

Journal of Economic Dynamics and Control

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“…This result is standard in the AK model with habit formation (e.g., Carroll et al, 1997, 2000, Alonso-Carrera et al, 2005, 2006, Gómez, 2008, and also in the neoclassical growth model with habits (e.g., Alonso-Carrera et al, 2005, Álvarez-Cuadrado et al, 2004, and Gómez, 2007 when labor supply is inelastic. 4 In contrast, multiple steady states may emerge in the presence of external habits when labor supply is elastic (see, e.g., Chen et al, 2009).…”

Section: Proof Eqs (13)mentioning

confidence: 56%

The Welfare Cost of External Habits: A Quantitative Assessment

Gómez¹

2010

Estudios de Economía

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“…The presence of a reference consumption stock dampens the utility associated with a change in initial consumption relative to the reference stock and makes agents more reluctant to change their consumption pattern. This is the "status effect" described by Alvarez-Cuadrado, Monteiro, and Turnovsky (2004). The negative wealth effect of the oil price shock impacts on consumption expenditures (E) with a 0.98 percent reduction only.…”

Section: Impact Effectsmentioning

confidence: 97%

“…We will restrict our attention on the "outward-looking" agent, whose reference stock is based on the average level of consumption in the economy, see Carroll, Overland, and Weil (1997). This restriction keeps the model more tractable, and moreover, the difference between assuming that the reference stock is formed by looking outwards or inwards (i. e. by basing the reference stock on the agent's own past consumption) is relatively small, although it does depend upon the specific shock that hits the economy, as Alvarez-Cuadrado, Monteiro, and Turnovsky (2004) show in a closed economy growth framework.…”

Section: Introductionmentioning

confidence: 99%

Dynamic Effects of Oil Price Shocks and Their Impact on the Current Account

Schubert

2013

Macroecon. Dynam.

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Our objective is to study the dynamic effects of an oil price shock on economic key variables and on the current account of a small open economy. To do this, we introduce time non-separable preferences in a standard model of a small open economy, where labor supply is endogenous and imported oil is used both as an intermediate input in production and as a consumption good. Using a plausible calibration of the model, we show that the changes in output and employment are quite small, and that the current account exhibits the J-curve property, both being in line with recent empirical evidence. After an oil price increase, the current account first deteriorates, and after some time it turns into surplus. We explain this non-monotonic behavior with agents' reluctance to change their consumption expenditures, resulting in an initial trade balance deficit which causes the current account to deteriorate.Over time, with gradually falling expenditures, the trade balance improves sufficiently to turn the current account into surplus. The model thus provides a plausible explanation of recent empirical findings.

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Habit Formation, Catching Up with the Joneses, and Economic Growth

Cited by 156 publications

References 32 publications

Keeping up with the ageing Joneses

Keeping up with the ageing Joneses

The Welfare Cost of External Habits: A Quantitative Assessment

Dynamic Effects of Oil Price Shocks and Their Impact on the Current Account

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