Obstfeld, Maurice. <br/><br/>
International Adjustment with Habit-Forming Consumption:  A Diagrammatic Exposition / 
Maurice Obstfeld. 
 - Cambridge, Mass.  National Bureau of Economic Research  1992. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w4094 .
 - Working Paper Series (National Bureau of Economic Research)  no. w4094. .
<br/><br/> June 1992. 
<br/><br/> 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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