The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Habit Persistence

  • Stephanie Schmitt-Grohé
  • Martin Uribe
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2191

Abstract

This article reviews the concept of habit persistence and its application in macroeconomics and finance. Special attention is given to the role of habit persistence in explaining the equity premium puzzle, observed business-cycle fluctuations and inflation dynamics, and in generating a theory of counter-cyclical markups of prices over marginal costs.

Keywords

Asset pricing Business-cycle fluctuations Currency pegs Deep habits Equity premium puzzle Euler equation Habit persistence Imperfect competition Inflation dynamics Investment adjustment costs Partial equilibrium Risk aversion Sticky prices Variable capacity utilization 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Stephanie Schmitt-Grohé
    • 1
  • Martin Uribe
    • 1
  1. 1.