Advanced search
1 file | 788.32 KB

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

Punnoose Jacob (UGent)
Author
Organization
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

Downloads

  • (...).pdf
    • full text
    • |
    • UGent only
    • |
    • PDF
    • |
    • 788.32 KB

Citation

Please use this url to cite or link to this publication:

Chicago
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.
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.
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.
MLA
Jacob, Punnoose. “Deep Habits, Price Rigidities, and the Consumption Response to Government Spending.” JOURNAL OF MONEY CREDIT AND BANKING 47.2-3 (2015): 481–509. Print.
@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},
}

Altmetric
View in Altmetric
Web of Science
Times cited: