Habit formation in state-dependent pricing models: Implications for the dynamics of output and prices

This paper examines the role of habit formation in a standard state-dependent pricing (SDP) model. Incorporating habit formation helps the SDP model to generate hump-shaped and more persistent output responses under a monetary shock. More importantly, incorporating habit formation causes dramatic changes in firm-level pricing behaviors and, as a result, the aggregate price index.

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Year of publication:	2014
Authors:	Ngo, Phuong V.
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 123.2014, 3, p. 336-340
Publisher:	Elsevier
Subject:	Sticky prices \| State-dependent pricing \| Habit formation \| Monetary policy transmission mechanism

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Type of publication:	Article
Classification:	E20 - Consumption, Saving, Production, Employment, and Investment. General ; E31 - Price Level; Inflation; Deflation ; E37 - Forecasting and Simulation ; E52 - Monetary Policy (Targets, Instruments, and Effects)
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010776611