A Note on Catching Up with the Joneses and Indeterminacy

This paper studies the possibility that a “catching-up-with-the-Joneses” effect can cause indeterminacy. In an otherwise standard growth model with an external past consumption habit, we analytically show that a catching-up-with-the-Joneses effect is a possible source of indeterminacy. In the quantitative investigation, we use a calibrated version of the model with a CES utility and find that indeterminacy is empirically plausible.