Habit persistence and the Harberger-Laursen-Metzler effect in an infinite horizon model

Mansoorian, Arman

doi:10.1016/0022-1996(93)90071-5

“…B Equilibrium solutions B.1 Dynamics of habit capital z: (18) The stable roots of dynamics (15) are given by ω and −α as in (16). Letting m denote (z, ς, Z) 0 , the general solution to (15) can thus be expressed aŝ…”

Section: Welfarementioning

confidence: 99%

“…For example, suppose that country H has no preference for habits: u z = 0, u zz = 0, u cz = 0, and hence Ω H = 0. From (20), the equilibrium consumption of country H still depends on its own habit capital, with root ω being determined solely by country F's preferences for habits (see (16) and (17)). Given that c is related to c * by market equilibrium condition (8), and that z is related to z * and Z by (10), the dependence of c * on z * due to country F's habit preferences induces the dependence of c on (z, Z) even though c does not depend directly on z.…”

Section: Equilibrium Dynamics 321 Habit and Consumptionmentioning

confidence: 99%

Habit Formation in an Interdependent World Economy

Ikeda

¹

,

Gombi

²

2009

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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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“…For example, suppose that country H has no preference for habits: u z = 0, u zz = 0, u cz = 0, and hence Ω H = 0. From (20), the equilibrium consumption of country H still depends on its own habit capital, with root ω being determined solely by country F's preferences for habits (see (16) and (17)). Given that c is related to c * by market equilibrium condition (8), and that z is related to z * and Z by (10), the dependence of c * on z * due to country F's habit preferences induces the dependence of c on (z, Z) even though c does not depend directly on z.…”

Section: Equilibrium Dynamics 321 Habit and Consumptionmentioning

confidence: 99%

“…B Equilibrium solutions B.1 Dynamics of habit capital z: (18) The stable roots of dynamics (15) are given by ω and −α as in (16). Letting m denote (z, ς, Z) 0 , the general solution to (15) can thus be expressed aŝ m (t) = A 1 exp (ωt) q + A 2 exp (−αt) h, where q ≡ (q 1 , q 2 , q 3 ) 0 and h ≡ (h 1 , h 2 , h 3 ) 0 represent the eigen vectors associated with stable roots ω and −α, respectively.…”

Section: The Interest Ratementioning

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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“…However, without no exception, the existing models of con-sumption habits commonly rule out consumers' interactions due to pecuniary externalities: they focus on representative agent models (e.g., Ryder and Heal (1973) and Carrol et al (2000)) and/or small country models (Mansoorian (1993) and Ikeda and Gombi (1999)). When the interest rate is endogenously determined in heterogeneous consumer (or country) economies, one's consumption-habit behavior would be a¤ected by others' through interestrate adjustments.…”

Section: Introductionmentioning

confidence: 99%

Heterogeneous Habits and the Transfer Paradox

Gombi

¹

,

Ikeda

²

2002

SSRN Journal

0

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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. By using a two-country model with habit-forming consumers, this paper shows that the transfer paradox can take place in the free-trade, dynamically-stable world economy. When the debtor is more habituated to consumption than the creditor, an income transfer from the creditor to the debtor raises the interest rate in transition through changes in time preference. With su¢ciently low elasticities of intertemporal substitution and/or su¢ciently large stock of the creditor's assets, the intertemporal terms of trade e¤ect immiserizes the recipient and enriches the donor. Although the transfer paradox occurs only when the international bond market is "unstable" with respect to an ad hoc Walrasian adjustment process, the equilibrium dynamics are stable in the usual sense: given that the economy is always in the rational expectation equilibrium, the transfer paradox generically occurs. JEL Classi…cation Numbers: F00, D90. Terms of use: Documents in EconStor may

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Habit persistence and the Harberger-Laursen-Metzler effect in an infinite horizon model

Cited by 35 publications

References 12 publications

Habit Formation in an Interdependent World Economy

Habit Formation in an Interdependent World Economy

Habit Formation in an Interdependent World Economy

Heterogeneous Habits and the Transfer Paradox

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