Optimal Consumption under a Habit-Formation Constraint: The Deterministic Case

On Consumption Bunching under Campbell-Cochrane Habit Formation

Campbell and Cochrane (1999) propose a preference speci cation that can explain a wide variety of asset pricing puzzles such as the high equity premium. They augment the basic power utility function with a time-varying subsistence level, or \habit", which is in the spirit of \catching up with the Joneses" but with a novel nonlinear mapping of consumption into habit. This paper demonstrates a su...

International Asset Pricing under Habit Formation and Idiosyncratic Consumption Risk

This paper presents a consumption-based asset pricing model to explain the equity premium and riskfree puzzles as well as the predictability of returns in the international equity markets. We find that because the model entails idiosyncratic consumption risk which is higher than the aggregate consumption risk, the model helps lower the investor risk aversion needed to explain the mean equity pr...

Consumption Models with Habit Formation

Consumption Models with Habit Formation

Optimal tax policy under habit formation and capital utilization

Our objective is to investigate, how the combination of habit formation with endogenous capital utilization decisions affects the process of economic growth. We find that in the presence of positive productivity growth, habit formation in consumption reduces the rate of capital utilization while increasing the long run stock of capital. We show in the Chamley–Judd result of zero income capital ...