KER
Deep Habits, Rule-of-Thumb Consumers, and Fiscal Policy
Daeha Cho (Boston University) and Kwang Hwan Kim (Yonsei University)발행년도2013Vol.29No.2
초록
Procyclical movements in private consumption and countercyclical markup are the most prominent feature to an increase in government spending. In this paper, we model deep habits and rule-of-thumb consumers to match this feature. We demonstrate that when ruleof-thumb consumers meet deep habits in consumption, our model improves the two models that are widely used in the literature to investigate the effect of government spending. First,it generates a more realistic markup response. Second, it reduces the threshold value of ruleof-thumb share necessary to crowd in consumption. The main reason behind the success is because both deep habits and rule-of-thumb consumers mutually reinforce.