Lancaster EPrints

Optimal monetary policy in a New Keynesian model with habits in consumption

Leith, Campbell and Moldovan, Ioana and Rossi, Raffaele (2012) Optimal monetary policy in a New Keynesian model with habits in consumption. Review of Economic Dynamics, 15 (3). pp. 416-435. ISSN 1094-2025

[img]
Preview
PDF (Optimal monetary policy in a New Keynesian model with habits in consumption) - Draft Version
Download (607Kb) | Preview

    Abstract

    In this paper we consider the implications of habits for optimal monetary policy, when those habits either exist at the level of the aggregate basket of consumption goods (‘superficial’ habits) or at the level of individual goods (‘deep’ habits: see Ravn et al., 2006). External habits generate an additional distortion in the economy and create new trade-offs for optimal policy, as the policy maker does not respond as aggressively to technology shocks in order to avoid exacerbating the habits externality. This can dramatically affect both the parameterization of optimal simple rules, as well as their determinacy properties. These effects are particularly strong when habits are of the deep kind.

    Item Type: Article
    Journal or Publication Title: Review of Economic Dynamics
    Uncontrolled Keywords: Consumption habits ; Nominal inertia ; Optimal monetary policy
    Subjects: H Social Sciences > HB Economic Theory
    Departments: Lancaster University Management School > Economics
    ID Code: 60039
    Deposited By: ep_importer_pure
    Deposited On: 16 Nov 2012 10:29
    Refereed?: Yes
    Published?: Published
    Last Modified: 24 Jan 2014 05:35
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/60039

    Actions (login required)

    View Item