Arbeitspapier
Habit Persistence in Consumption in a Sticky Price Model of the Business Cycle
This paper examines the role of habit persistence in consumption in explaining persistent responses of inflation and output to money growth shocks. A monetary stochastic dynamic general equilibrium (DGE) model with a money-in-the-utility-function (MIU-) setup is augmented by habit formation in consumption and evaluated for both Taylor and Calvo price staggering. It is shown that in the benchmark Taylor price staggering model consumption displays a persistent response while the volatility falls short empirical estimates. The reaction of most other aggregates including output, inflation and prices is counterfactually cyclical. Investment, labor hours and the real wage are too strongly correlated with output. In the benchmark Calvo price staggering model consumption is hump-shaped. Most variables are persistent and consumption shows a higher standard deviation. In sum, habit persistence in consumption improves the model outcome with respect to consumption's reaction while Calvo staggering improves the ability of a DGE model to explain persistent reactions of the other macroeconomic aggregates to money growth shocks.
- Language
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Englisch
- Bibliographic citation
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Series: Volkswirtschaftliche Diskussionsbeiträge ; No. 111-03
- Classification
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Wirtschaft
Monetary Policy
- Subject
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Monetary Policy
New Neoclassical Synthesis
Sticky Prices
Persistency
Habit Persistence
Konjunkturtheorie
Preisrigidität
Konsumentenverhalten
Dynamisches Gleichgewicht
Neue klassische Makroökonomik
Theorie
- Event
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Geistige Schöpfung
- (who)
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Gail, Michael
- Event
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Veröffentlichung
- (who)
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Universität Siegen, Fakultät III, Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht
- (where)
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Siegen
- (when)
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2003
- Handle
- Last update
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10.03.2025, 11:47 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Gail, Michael
- Universität Siegen, Fakultät III, Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht
Time of origin
- 2003
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