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Working Paper
Business cycle implications of internal consumption habit for New Keynesian models
This paper studies the implications of internal consumption habit for propagation and monetary transmission in New Keynesian dynamic stochastic general equilibrium (NKDSGE) models. We use Bayesian methods to evaluate the role of internal consumption habit in NKDSGE model propagation and monetary transmission. Simulation experiments show that internal consumption habit often improves NKDSGE model fit to output and consumption growth spectra by dampening business cycle periodicity. Nonetheless, habit NKDSGE model fit is vulnerable to nominal rigidity, the choice of monetary policy rule, the ...
Working Paper
Business cycle implications of internal consumption habit for new Keynesian models
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 NKDSGE models to match the spectra of output and consumption growth. Nonetheless, the fit of NKDSGE models with internal consumption habit is susceptible to the sources of nominal rigidity, to spectra identified by permanent productivity shocks, to the choice of monetary policy rule, and to the frequencies ...