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

Phuong V Ngo

doi:10.1016/j.econlet.2014.03.012

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

Phuong V Ngo

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

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. © 2014 Elsevier B.V.

Original language	English
Pages (from-to)	336-340
Number of pages	5
Journal	Economics Letters
Volume	123
Issue number	3
DOIs	https://doi.org/10.1016/j.econlet.2014.03.012
State	Published - Jan 1 2014

Keywords

Habit formation
Monetary policy transmission mechanism
State-dependent pricing
Sticky prices

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10.1016/j.econlet.2014.03.012

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AB - 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. © 2014 Elsevier B.V.

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

Abstract

Keywords

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