Endogenous Growth with Intertemporally Dependent Preferences

This paper presents an endogenous growth model with intertemporally dependent preferences and "Ak" technology. We derive sufficient conditions for a balanced growth path to be an equilibrium, provide a full characterization of the equilibrium dynamics of the economy, and explore the implications of habit formation for the patterns of cross-country growth and convergence. Finally, we show that the alternative departure from the standard assumption of isoelastic preferences represented by the use of a Stone-Geary utility function can be interpreted as a special case of the model with habit formation. Our results highlight the importance of preferences in the dynamics of growth, a point neglected in most of the literature.

[1]  M. Boyer.  An Optimal Growth Model with Stationary Non-Additive Utilities , 1975 .

[2]  J. Campbell,et al.  By Force of Habit: A Consumption‐Based Explanation of Aggregate Stock Market Behavior , 1995, Journal of Political Economy.

[3]  Manuel S. Santos,et al.  On Endogenous Growth with Physical and Human Capital , 1993, Journal of Political Economy.

[4]  Habit persistence and the Harberger-Laursen-Metzler effect in an infinite horizon model , 1993 .

[5]  Charles H. Whiteman,et al.  Habit formation: a resolution of the equity premium puzzle? , 2002 .

[6]  Jaume Ventura,et al.  A representative consumer theory of distribution , 1996 .

[7]  Minimum Consumption Requirements: Theoretical and Quantitative Implications for Growth and Distribution , 1997 .

[8]  Christopher D. Carroll,et al.  Saving and Growth with Habit Formation , 2000 .

[9]  Antonia Díaz,et al.  Precautionary savings and wealth distribution under habit formation preferences , 2003 .

[10]  Christopher D. Carroll,et al.  Comparison Utility in a Growth Model , 1997 .

[11]  Fabio Fornari,et al.  The impact of news on the exchange rate of the lira and long-term interest rates , 2002 .

[12]  H. Uhlig,et al.  Can Habit Formation be Reconciled with Business Cycle Facts , 1995 .

[13]  Michael W. Klein,et al.  Risky Habits: On Risk Sharing, Habit Formation, and the Interpretation of International Consumption Correlations , 1998 .

[14]  Andrew B. Abel,et al.  Asset Prices Under Habit Formation and Catching Up with the Joneses , 1990 .

[15]  Klaus Deininger,et al.  A New Data Set Measuring Income Inequality , 1996 .

[16]  Lawrence J. Christiano,et al.  HABIT PERSISTENCE AND ASSET RETURNS IN AN EXCHANGE ECONOMY , 1997, Macroeconomic Dynamics.

[17]  Eve Caroli,et al.  Inequality and Economic Growth: The Perspective of the New Growth Theories , 1999 .

[18]  M. Obstfeld.  International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition , 1992 .

[19]  James J. Heckman,et al.  A Life-Cycle Model of Earnings, Learning, and Consumption , 1976, Journal of Political Economy.

[20]  Harald Uhlig,et al.  Tax Policy and Aggregate Demand Management under Catching Up with the Joneses , 2000 .

[21]  Geoffrey Heal,et al.  Optimal Growth with Intertemporally Dependent Preferences , 1973 .

[22]  Marcel Boyer.  A Habit Forming Optimal Growth Model , 1976 .

[23]  Kevin M. Murphy,et al.  A Theory of Rational Addiction , 1988, Journal of Political Economy.

[24]  Christopher Otrok,et al.  On Measuring the Welfare Cost of Business Cycles , 2001 .

[25]  J. Galí,et al.  Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices , 1994 .

[26]  Christopher D. Carroll,et al.  ON THE CONCAVITY OF THE CONSUMPTION FUNCTION , 1995 .

[27]  S. Rebelo,et al.  Long-Run Policy Analysis and Long-Run Growth , 1990, Journal of Political Economy.