Optimal Monetary Policy in a New Keynesian Model with Habits in Consumption


Autoria(s): Leith, Campbell; Moldovan, Ioana; Rossi, Raffaele
Data(s)

29/02/2012

29/02/2012

2008

Resumo

While consumption habits have been utilised as a means of generating a humpshaped output response to monetary policy shocks in sticky-price New Keynesian economies, there is relatively little analysis of the impact of habits (particularly,external habits) on optimal policy. In this paper we consider the implications of external 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, which implies that the flex-price equilibrium will no longer be efficient and that policy faces interesting new trade-offs and potential stabilisation biases. Furthermore, the endogenous mark-up behaviour, which emerges when habits are deep, can also significantly affect the optimal policy response to shocks, as well as dramatically affecting the stabilising properties of standard simple rules.

Identificador

http://hdl.handle.net/10943/68

Publicador

University of Glasgow

Relação

SIRE DISCUSSION PAPERS;SIRE-DP-2008-55

Palavras-Chave #consumption habits #nominal inertia, #optimal monetary policy
Tipo

Working Paper