The inability of a wide array of dynamic stochastic general equilibrium (DSGE) models to generate fluctuations that resemble actual business cycles has lead to the use of habit formation in consumption. For example, habit formation has been shown to help explain the negative response of labour...

In an influential paper, Engel and West (2005) claim that the near random-walk behavior of nom- inal exchange rates is an equilibrium outcome of a variant of present-value models when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one....

We study the implications of internal consumption habit for New Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of...

We study the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of...

This paper studies the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that consumption habit often improves the ability of...

The most prominent characteristic of the Japanese yen/U.S. dollar nominal exchange rate in the post-Plaza Accord era is its near random-walk behavior sharing a common stochastic trend with the monetary base differential, which is augmented by the excess reserves, between Japan and the United...

This paper investigates how "prices" in East Asian economies were correlated with those in Japan and with those in the United States. The analysis is particularly noteworthy because East Asian Economies are geographically close to Japan but their currencies have been more tied to the US dollar....

A recent paper claims that habit formation in consumption plays an important role in current account fluctuations in selected developed countries, extending the present-value model of the current account (PVM) with consumption habits. In this paper, however, I show that the habit-forming PVM is...

A recent paper claims that habit formation in consumption plays an important role in current ac- count fluctuations in selected developed countries, extending the present-value model of the current account (PVM) with consumption habits. In this paper, however, I show that the habit-forming PVM...

Using a Monte Carlo approach, we evaluate the small-sample properties of four different tests of the present-value model (PVM) of the current account: the nonlinear Wald, linear Wald, Lagrange multiplier and likelihood ratio tests. We find that the nonlinear Wald test is biased towards...