@techreport{NBERw10261,
 title = "Deep Habits",
 author = "Morten Ravn and Stephanie Schmitt-Grohe and Martin Uribe",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "10261",
 year = "2004",
 month = "February",
 URL = "http://www.nber.org/papers/w10261",
 abstract = {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.},
}