International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition / Maurice Obstfeld.

By:

Obstfeld, Maurice

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w4094.Publication details: Cambridge, Mass. National Bureau of Economic Research 1992.Description: 1 online resource: illustrations (black and white)Subject(s):

F32 - Current Account Adjustment • Short-Term Capital Movements
D91 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

Online resources:

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Abstract: This paper presents a simple diagrammatic analysis of an open economy's external adjustment process under habit-forming individual preferences. The exposition focuses on the consumption side and aims to make transparent the linkage among wealth, past consumption experience, and current consumption. An extension of the standard representative-agent model to a growing economy of overlapping generations completes the paper. Under habit formation an agent's consumption exhibits a form of hysteresis, in that his current consumption depends on his past consumption experience as well as initial assets. In the overlapping-generations model aggregate hysteresis disappears in the long run.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w4094 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

June 1992.

This paper presents a simple diagrammatic analysis of an open economy's external adjustment process under habit-forming individual preferences. The exposition focuses on the consumption side and aims to make transparent the linkage among wealth, past consumption experience, and current consumption. An extension of the standard representative-agent model to a growing economy of overlapping generations completes the paper. Under habit formation an agent's consumption exhibits a form of hysteresis, in that his current consumption depends on his past consumption experience as well as initial assets. In the overlapping-generations model aggregate hysteresis disappears in the long run.