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Habit persistence and international comovements


Dmitriev, A and Krznar, I, Habit persistence and international comovements, Macroeconomic Dynamics, 16, (Supplement S3) pp. 312-330. ISSN 1365-1005 (2012) [Refereed Article]

Copyright Statement

Copyright 2011 Cambridge University Press

DOI: doi:10.1017/S1365100510000957


Theoretically, two-country real business cycle models with time-separable preferences and complete markets predict that cross-country investment correlations will be negative. The opposite is true in the data. This phenomenon has been described by Backus et al. [in Cooley (ed.), Frontiers of Business Cycle Research, pp. 331356 (Princeton, NJ: Princeton University Press, 1995)] as a quantity anomaly. This paper proposes to address this discrepancy by allowing the nonseparability of preferences over time. Here, we incorporate internal habit formation into consumption. Our model predicts the empirically plausible value of cross-country investment correlation without sacrificing other business cycle statistics. The results are robust to the degree of spillovers and persistence in the specification of the productivity shocks.

Item Details

Item Type:Refereed Article
Keywords:International Real Business Cycles, Time-Nonseparable Preferences, Habit Persistence, Investment Comovements
Research Division:Economics
Research Group:Applied economics
Research Field:Macroeconomics (incl. monetary and fiscal theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Fiscal policy
UTAS Author:Dmitriev, A (Dr Alexandre Dmitriev)
ID Code:83252
Year Published:2012
Web of Science® Times Cited:5
Deposited By:Economics and Finance
Deposited On:2013-03-06
Last Modified:2014-12-20

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