Habit Formation: Deep and Uncertain

We extend the Ravn, Schmitt-Grohe and Uribe (Review of Economic Studies, 2006) model of external deep-habits with the idea that some product varieties are more prone to habit formation than others. This s uncertainty in habit formation which affects firm's pricing. Provided that uncertainty is strong, a profound implication is that role of market frictions, such as habit formation, and its consequences for the dynamic variations in the markups can be reversed.

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Year of publication:	2007
Authors:	Choudhary, Ali ; Kim, Young-Bae
Published in:	Economics Bulletin. - AccessEcon, ISSN 1545-2921. - Vol. 4.2007, 5, p. 1-7
Publisher:	AccessEcon

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Extent:	application/pdf
Type of publication:	Article
Classification:	D1 - Household Behavior and Family Economics ; E3 - Prices, Business Fluctuations, and Cycles
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005416811