Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/209539
Authors: 
Vasilev, Aleksandar
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Economics and Econometrics [ISSN:] 2032-9660 [Issue:] forthcoming
Abstract: 
We introduce consumption habits into an exogenous growth model augmented with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without habits, e.g., Vasilev (2009), when the economy features saddle-path stability, the habit motive alone leads to equilibrium indeterminacy in the model. When habits enter multiplicatively in the representative agent's utility function, the setup exhibits "sink" dynamics, and equilibrium paths are determined by "animal spirits." These results are in line with the findings in the literature, e.g., Benhabib and Farmer (1994, 1996) and Farmer (1999), and have major implications for policy-making and welfare.
Subjects: 
E32
E22
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)

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