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New Directions in Monetary and Fiscal Policy Analysis at the Macroeconomic Level

Grant reference: RES-062-23-1436

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Journal article details

Optimal monetary policy in a new Keynesian model with habits in consumption
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, Schmitt-Grohe, and Uribe (2006)). External habits generate an additional distortion in the economy and create new trade-o¤s 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 a¤ect both the parameterization of optimal simple rules, as well as their determinacy properties. These e¤ects are particularly strong when habits are of the deep kind.
10.1016/j.red.2012.03.001
English

Primary contributor

Author Campbell Leith

Additional contributors

Co-author Ioana Moldovan
Co-author Raffaele Rossi

Additional details

15
3
No
1094-2025
Academic Press, Elsevier
01 July 2012
416-435
San Diego, CA
Post-print
Review of economic dynamics

Files

Leith_optimal.pdf (.pdf / 2341kb)

Cite this outcome

Harvard

Leith, Campbell et al (2012) Optimal monetary policy in a new Keynesian model with habits in consumption. Review of economic dynamics. 15 (3), pp. 416-435 San Diego, CA: Academic Press, Elsevier.

Vancouver

Leith Campbell et al. Optimal monetary policy in a new Keynesian model with habits in consumption. Review of economic dynamics 2012; 15 (3): 416-435.