TY  - JOUR
AU  - Obstfeld,Maurice
TI  - International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4094
PY  - 1993
Y2  - January 1993
UR  - http://www.nber.org/papers/w4094
L1  - http://www.nber.org/papers/w4094.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
AB  - This paper presents a simple diagrammatic analysis of an open economy's external adjustment process under habit-forming individual preferences. The exposition focuses on the consumption side and aims to make transparent the linkage among wealth, past consumption experience, and current consumption. An extension of the standard representative-agent model to a growing economy of overlapping generations completes the paper. Under habit formation an agent's consumption exhibits a form of hysteresis, in that his current consumption depends on his past consumption experience as well as initial assets. In the overlapping-generations model aggregate hysteresis disappears in the long run.
ER  -