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The New Open Economy Macroeconomics of Working Habits

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http://www.scirp.org/journal/PaperInformation.aspx?PaperID=54076#.VO1rRizQrzE

ABSTRACT
This paper develops a new open economy macroeconomics model by allowing for habit formation in labor supply. The main findings of our analysis are that 1) an increase in the importance of working habits strengthens the effect of monetary policy shocks on relative consumption, weakens on change in the equilibrium exchange rate, and 2) an increase in the importance of working habits strengthens the response of relative consumption and the equilibrium exchange rate change to fiscal policy shocks.
 
Cite this paper
Wang, Y. , Liu, Q. , Guan, B. and Sui, X. (2015) The New Open Economy Macroeconomics of Working Habits. Theoretical Economics Letters, 5, 125-131. doi: 10.4236/tel.2015.51017.
 
References
[1]Abel, A.B. (1990) Asset Prices under Habit Formation and Catching up with the Joneses. American Economic Review, 80, 38-42.
 
[2]Woittiez, I. and Kapteyn, A. (1998) Social Interactions and Habit Formation in a Model of Female Labor Supply. Journal of Public Economics, 70, 185-205. http://dx.doi.org/10.1016/S0047-2727(98)00021-8
 
[3]Kubin, I. and Prinz, A. (2002) Labor Supply with Habit Formation. Economics Letters, 81, 75-79. http://dx.doi.org/10.1016/S0165-1765(01)00595-X
 
[4]Faria, J.R. (2001) Habit Formation in a Monetary Growth Model. Economics Letters, 73, 51-55. http://dx.doi.org/10.1016/S0165-1765(01)00464-5
 
[5]Obstfeld, M. and Rogoff, K. (1995) Exchange Rate Dynamics Redux. Journal of Political Economics, 103, 624-660. http://dx.doi.org/10.1086/261997
 
[6]Obstfeld, M. and Rogoff, K. (1996) Foundations of International Macroeconomics. MIT Press, Cambridge.
 
[7]Faria, J.R. and León-Ledesma, M.A. (2004) Habit Formation, Work Ethics and Technological Progress. The Manchester School, 72, 403-413. http://dx.doi.org/10.1111/j.1467-9957.2004.00399.x
 
[8]Becker, G.S., Grossman, M. and Murphy, K.M. (1991) Rational Addiction and the Effect of Price on Consumption. American Economic Review, 81, 237-251.
 
[9]Fuhrer, J.C. (2000) Habit Formation in Consumption and Its Implications for Monetary-Policy Models. American Economic Review, 90, 367-390. http://dx.doi.org/10.1257/aer.90.3.367                eww150225lx
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