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Title: |
Liquidity Effects and Habit Formation in a Sticky Price Model |
| Author: |
Jung, Yongseung |
| Author
Affiliation: |
Kyunghee University, Korea |
| Source: |
International Economic Journal, December 2004, v. 18, no. 4, pp. 523-548 |
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Publication Date: |
December 2004 |
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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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