Consequences of Modeling Habit Persistence ∗

  title={Consequences of Modeling Habit Persistence ∗},
  author={Luca Bossi and Pere Gomis-Porqueras},
In this paper, we study the stationary and non-stationary equilibria of a deterministic, pure exchange, two-period overlapping generations model with habit persistence. We show that preferences with multiplicative habits can lead to quite different equilibrium outcomes compared to subtractive ones. The two most commonly adopted habit specifications can differ in terms of homotheticity, gross substitutability, and uniqueness of equilibria. We illustrate these differences in terms of steady state… CONTINUE READING

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