Consumption habits and humps

Solving Consumption Models with Habits

Doctors' drinking habits and consumption of alcohol.

Alcohol consumption and drinking habits among Finnish doctors were studied as part of a survey of stress and burnout. A questionnaire containing 99 questions or groups of questions was sent to all 3496 practising doctors aged under 66 randomly selected from the registry of the Finnish Medical Association. Altogether 2671 doctors (76%) responded; this sample was representative of the Finnish med...

Consumption Habits and interest rate rigidity

In this paper we provide a micro model of loans which the lender is a monopolistic bank and the borrower is a competitive consumer with consumption habits who may default on part of his debt. In this setting, we prove that the loan demand curve is kinked and therefore it is possible to find interest rate rigidity in equilibrium as well as asymmetric response of loans to interest rate variations...

Non-addictive habits: optimal consumption-portfolio policies

We formulate a model of preferences with non-addictive habits, where consumption is required to be non-negative at all times, but is allowed to fall below a “standard of living” index that aggregates past consumption. In this context we study the consumption-portfolio choice problem taking account of the non-negativity constraint on consumption, and provide a constructive proof for the existenc...

Solving consumption models with multiplicative habits

This paper provides derivations necessary for solving an optimal consumption problem with multiplicative habits and a CRRA ‘outer’ utility function, either for a microeconomic problem with both labor income risk and rate-of-return risk, or for a macroeconomic representative agent model.