Consumption Models with Habit Formation

Investigation on Habit Formation, Risk Aversion and Intertemporal Substitution in Consumption of Iranian Households by GMM Approach

Consumption is the principal feature of Iran’s Gross National Production. Therefore, recognizing of factors that influence it is quite crucial. This article, investigates habit formation, durability, relative risk aversion and intertemporal substitution in consumption expenditures of Iranian households. For empirical study, at first, we constructed two weighted portfolio of the main assets re...

New Keynesian Optimal-Policy Models: An Empirical Assessment

This paper estimates two optimization-based sticky-price New Keynesian models and assesses how well they describe US output, inflation, and interest rate dynamics. We consider models in which either internal habit formation or external habit formation influence consumption behavior, and in which Calvopricing and inflation indexation generate price and inflation inertia. Subject to constraints d...

An Optimizing Model for Monetary Policy Analysis: Can Habit Formation Help?

In earlier work (Fuhrer 1996), I document what I view as the failure of standard models of representative consumer and firm behavior to replicate the dynamics that we observe in the aggregate data. In essence, these models fail because they imply that both inflation and real variables must “jump” in response to monetary policy (and other) shocks, in contrast to identified VAR evidence that show...

Consumption Models with Habit Formation

Life Cycle Consumption and Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk

Representative agent asset pricing models with habit formation preferences do not generate implications for the behavior of individual agents. To explore these implications , I consider a life cycle model of consumption, savings and portfolio allocation for a household with additive and endogenous habit formation preferences. To solve the model, I characterize analytically the boundary of admis...