This paper extends the standard New Keynesian dynamic stochastic general equilibrium (DSGE) model to agents who cannot smooth consumption (i.e. spenders) and are affected by external consumption habits. Although these assumptions are not new, their joint consideration strongly affects some...

The theoretical literature on business cycles predicts a positive investment response to productivity improvements. In this work we question this prediction from theoretical and empirical standpoints. We first show that a negative short-term response of investment to a positive technology shock...