Liquidity effects and habit formation in a sticky price model |
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Authors: | Yongseung Jung |
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Affiliation: | Department of Economics , Kyung Hee University |
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Abstract: | This paper sets up a sticky price model with external habit formations. It shows that the cross-correlation between output and interest rates as well as prices match the data well when there is habit formation. Consumption as well as output display a hump-shaped response to a positive monetary shock when there is habit formation. The paper also shows that the sticky price model with Abel's (1990, 1999) external habit formation succeeds in generating liquidity effects. |
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Keywords: | Habit formation leading indicator monetary policy sticky price JEL Classification: E31, E52 |
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