We analyze the implications of household-level adjustment costs for the dynamics of aggregate consumption. We show that an economy in which agents have ldquo;consumption commitmentsrdquo; is approximately equivalent to a habit formation model in which the habit stock is a weighted average of...

Many households devote a large fraction of their budgets to "consumption commitments" -- goods that involve transaction costs and are infrequently adjusted. This paper characterizes risk preferences in an expected utility model with commitments. We show that commitments affect risk preferences...

We analyze the implications of household-level adjustment costs for the dynamics of aggregate consumption. We show that an economy in which agents have "consumption commitments" is approximately equivalent to a habit formation model in which the habit stock is a weighted average of past...