City Research Online

Abstract

A New-Keynesian model with deep habits and optimal monetary policy delivers a larger-than-one multiplier and consumption crowding-in. Optimized Taylor-type rules dominate a conventional Taylor rule. Consumption is crowded out if the Taylor rule is sub-optimal or if commitment is absent.

Publication Type:	Article
Additional Information:	NOTICE: this is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, Volume 117, Issue 1, Pages 348–353, http://dx.doi.org/10.1016/j.econlet.2012.05.051.
Publisher Keywords:	Deep habits, Optimal monetary policy, Price-level rule
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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