Habit formation and indeterminacy in overlapping generations models (Q2636856)

The author introduces ``habit formation into an otherwise standard three-period-lived overlapping generations economy with money, in an attempt to overcome the aforementioned concern [that in two-period models special income effects sometimes require unrealistic parameter specifications]. Habits are modeled in such a way that current consumption increases the marginal utility of future consumption.'' He shows ``that the monetary steady state is locally stable when the discount factor is close to one half, the endowment profile is hump-shaped, and the utility function is logarithmic.'' The paper is structured as follows. ``Section 2 introduces the layout of the model. Section 3 studies the competitive equilibrium with outside money, revisits the two-period model put forth by \textit{A. Lahiri} and \textit{M. Puhakka} [J. Econ. Theory 78, No. 1, 176--186 (1998; Zbl 0895.90063)], and explores the case without outside money.''