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Title: |
Habits and Durability in Consumption and the
Effects of Exchange Rate Policies |
| Author: |
Mansoorian, Arman; Neaime, Simon |
| Author
Affiliation: |
York U;
American U Beirut |
| Source: |
International Economic Journal, Summer 2002, v. 16, no. 2, pp. 97-114 |
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Publication Date: |
Summer 2002 |
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Abstract: |
The effects of
exchange rate policies are worked out in a model in which consumption
goods are durable, and money enters the utility function. The
interaction of habits and durability results in a non-monotonic
adjustment of consumption expenditures, and the current account. As
money does not exhibit durability, its dynamics are monotonic, and
determined mainly by habits effects. Hence, an increase in the rate of
depreciation of the domestic currency will very likely lead to a
non-monotonic adjustment of consumption and the current account, while
the adjustment of real money holdings will be monotonic. |
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