Saving and Growth with Habit Formation

Working Paper No 95-42

Posted: 23 Aug 1998

See all articles by Christopher D. Carroll

Christopher D. Carroll

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER)

Jody R. Overland

Independent

David N. Weil

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

Standard growth models take the form of a representative consumer maximizing an intertemporally separable utility function. We explore the implications of one kind of nonseparability by allowing utility to depend on a comparison of consumption to a "habit stock" determined by past consumption. Our model is consistent with some empirical findings which are problematic for standard models. For example, Carroll and Weil (1994) find that aggregate saving rates increase after increases in the aggregate growth rate, even though growth rates are positively serially correalated; the standard model would predict a decline in saving as consumers spent part of their anticipated higher future income.

JEL Classification: D91, E21, O40

Suggested Citation

Carroll, Christopher D. and Overland, Jody R. and Weil, David Nathan, Saving and Growth with Habit Formation. Working Paper No 95-42. Available at SSRN: https://ssrn.com/abstract=6836

Christopher D. Carroll (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
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410-516-7602 (Phone)
303-845-7533 (Fax)

National Bureau of Economic Research (NBER)

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Jody R. Overland

Independent ( email )

No Address Available

David Nathan Weil

Brown University - Department of Economics ( email )

Box B
Providence, RI 02912
United States
401-863-1754 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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