HABIT FORMATION IN AN INTERDEPENDENT WORLD ECONOMY

Economic Growth in an Interdependent World Economy*

A possible alternative to the Solow-Swan model is some variant of a model of endogenous growth either in the form of the AK model developed by Romer (1986), Lucas (1988) and Rebelo (1991) or in the subsequent group of models by Romer (1990), Grossman and Helpman (1991a, b), and Aghion and Howitt (1992) that focus more explicitly on the determinants of technological change. In this article we st...

Decreasing and increasing marginal impatience and the terms of trade in an interdependent world economy

Using a two-good, two-country model, we examine macroeconomic adjustment by allowing for decreasing and increasing marginal impatience (DMI and IMI). In the reference case where both countries have IMI, a negative output shock in one country lowers the interest rate and both countries’ welfare levels in steady state, whereas, when either one country has DMI, the negative income shock raises the...

Economic Growth in an Interdependent World Economy1

The Solow-Swan growth model predicts that growth should be uncorrelated with the ratio of national investment to GDP. If capital markets are open, the model predicts instantaneous convergence of GDP per capita across countries. Convergence is achieved by capital flows from rich to poor countries and a consequence of these flows is that the ratio of national savings to GDP in each country should...

Habit Formation, Interdependent Preferences and Demographic Effects in the Almost Ideal Demand System

Habit formation

Habits, both good ones and bad ones, are pervasive in animal behavior. Important frameworks have been developed to understand habits through psychological and neurobiological studies. This work has given us a rich understanding of brain networks that promote habits, and has also helped us to understand what constitutes a habitual behavior as opposed to a behavior that is more flexible and prosp...