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Deep habits, price rigidities, and the consumption response to government spending

Punnoose Jacob (UGent)
(2015) JOURNAL OF MONEY CREDIT AND BANKING. 47(2-3). p.481-509
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Abstract
This paper studies two frictions, good-specific habit formation and price rigidities, used in theoretical models to generate the crowding-in of consumption by expansionary government spending observed in the data. Both frictions generate countercyclical price markups, rising wages, and ensuing consumption-leisure substitution to overcome the negative wealth effect of the fiscal expansion. I demonstrate that while they independentlysupport the rise of consumption, when used together the two frictions exert opposing pressures on the markup and the wage, weakening consumption-leisure substitution. Crucially, when price stickiness is high enough in an economy with deep habits, consumption is crowded out by the fiscal expansion.
Keywords
POLICY, FISCAL STIMULUS, SHOCKS, OUTPUT, MODEL, deep habits, sticky prices, government spending, comovement, crowding-out

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Citation

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MLA
Jacob, Punnoose. “Deep Habits, Price Rigidities, and the Consumption Response to Government Spending.” JOURNAL OF MONEY CREDIT AND BANKING, vol. 47, no. 2–3, 2015, pp. 481–509, doi:10.1111/jmcb.12183.
APA
Jacob, P. (2015). Deep habits, price rigidities, and the consumption response to government spending. JOURNAL OF MONEY CREDIT AND BANKING, 47(2–3), 481–509. https://doi.org/10.1111/jmcb.12183
Chicago author-date
Jacob, Punnoose. 2015. “Deep Habits, Price Rigidities, and the Consumption Response to Government Spending.” JOURNAL OF MONEY CREDIT AND BANKING 47 (2–3): 481–509. https://doi.org/10.1111/jmcb.12183.
Chicago author-date (all authors)
Jacob, Punnoose. 2015. “Deep Habits, Price Rigidities, and the Consumption Response to Government Spending.” JOURNAL OF MONEY CREDIT AND BANKING 47 (2–3): 481–509. doi:10.1111/jmcb.12183.
Vancouver
1.
Jacob P. Deep habits, price rigidities, and the consumption response to government spending. JOURNAL OF MONEY CREDIT AND BANKING. 2015;47(2–3):481–509.
IEEE
[1]
P. Jacob, “Deep habits, price rigidities, and the consumption response to government spending,” JOURNAL OF MONEY CREDIT AND BANKING, vol. 47, no. 2–3, pp. 481–509, 2015.
@article{6971274,
  abstract     = {{This paper studies two frictions, good-specific habit formation and price rigidities, used in theoretical models to generate the crowding-in of consumption by expansionary government spending observed in the data. Both frictions generate countercyclical price markups, rising wages, and ensuing consumption-leisure substitution to overcome the negative wealth effect of the fiscal expansion. I demonstrate that while they independentlysupport the rise of consumption, when used together the two frictions exert opposing pressures on the markup and the wage, weakening consumption-leisure substitution. Crucially, when price stickiness is high enough in an economy with deep habits, consumption is crowded out by the fiscal expansion.}},
  author       = {{Jacob, Punnoose}},
  issn         = {{0022-2879}},
  journal      = {{JOURNAL OF MONEY CREDIT AND BANKING}},
  keywords     = {{POLICY,FISCAL STIMULUS,SHOCKS,OUTPUT,MODEL,deep habits,sticky prices,government spending,comovement,crowding-out}},
  language     = {{eng}},
  number       = {{2-3}},
  pages        = {{481--509}},
  title        = {{Deep habits, price rigidities, and the consumption response to government spending}},
  url          = {{http://dx.doi.org/10.1111/jmcb.12183}},
  volume       = {{47}},
  year         = {{2015}},
}
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