Can consumption habit spillovers be a source of equilibrium indeterminacy?Been-Lon Chen, Yu-Shan Hsu () and Kazuo Mino Journal of Economics, 2013, vol. 109, issue 3, 245-269 Abstract: This paper investigates whether the external consumption habit can be a source of indeterminacy in a one-sector growth model when the labor supply is elastic. When there is a proper habit effect with a positive intertemporal elasticity of substitution, we find that the model exhibits indeterminacy if the coefficient of the habit formation is sufficiently large that allows for a substantial impact of current consumption on the habit. Indeterminacy arises even though the elasticity of the Frisch labor supply is positive and the elasticity of the labor demand in negative. In a calibrated version, we find that indeterminacy is empirically plausible when the habit effect is negative that features the “catching up with the Joneses” effect. Under given “catching up with the Joneses” effects, the external consumption habit can be a source of indeterminacy even if more than a half of the external consumption habit comes from past average consumption. Copyright Springer-Verlag 2013 Keywords: Habit; Catching up with the Joneses; Indeterminacy; Growth model; E21; E32 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:109:y:2013:i:3:p:245-269 DOI: 10.1007/s00712-012-0301-9 Access Statistics for this article Journal of Economics is currently edited by Giacomo Corneo More articles in Journal of Economics from Springer |
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