Deep habits
By: Morten Ravn, Stephanie Schmitt-Grohe, Martin Uribe.
Contributors: Schmitt-Grohe, Stephanie.; Uribe, Martin.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10261; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10261.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Consumption (Economics) -- Econometric models.; Habit.
Description: "This paper generalizes the standard habit formation model to an environment in which agents form habits over individual varieties of goods as opposed to over a composite consumption good.  We refer to this preference specification as deep habit formation.  Under deep habits, the demand function faced by individual producers depends on past sales.  This feature is typically assumed ad-hoc in customer market and brand switching cost models.  A central result of the paper is that deep habits give rise to countercyclical markups, which is in line with the empirical evidence.  This result is important because ad-hoc formulations of customer-market and switching-cost models have been criticized for implying procyclical and hence counterfactual markup movements.  The paper also provides econometric estimates of the parameters pertaining to the deep habit model"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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