Composite habits and international transmission of business cycles
This paper shows how internal habit formation defined over a composite of consumption and leisure can bring a two-country business cycle model closer to the data. Conditional on productivity shocks, our model reconciles with the data by closing the gap between cross-country correlations of consumption and output. It also predicts positive international correlations of investment and employment of the magnitude observed in the data. In other words, a rather parsimonious departure from a...[Show more]
|Collections||ANU Research Publications|
|Source:||Journal of Economic Dynamics and Control|
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