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| Kevin x.d. Huang, Engin Volkan and M. ege Yazgan |
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| ''Nonhomothetic Preferences with Habit Formation in Nondurable and Durable Consumption: Implications for Sectoral Comovement'' |
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| We argue that nonhomothetic preferences with habit formation in nondurable and durable consumption can be a driving force behind sectoral comovement in production. We make this point by augmenting a two-sector New Keyesian model a la Barsky, House and Kimball (2007) with these two real features of the data. Our estimates imply that these two features interact to generate an empirically important mechanism that propagates monetary shocks to produce significant cross-sector comovement |
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| Keywords: Nonhomothetic preferences; habit formation; non-durable goods; durable goods; sectoral comovement; New Keyesian model |
JEL: E3 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General |
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| Manuscript Received : Feb 11 2013 | | Manuscript Accepted : Feb 13 2013 |
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