Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-26T00:01:05.409Z Has data issue: false hasContentIssue false
  • English
  • Français

ANTICIPATED FUTURE CONSUMPTION IN AN ENDOGENOUS GROWTH MODEL

Published online by Cambridge University Press:  11 November 2020

Manuel A. Gómez  and
Goncalo Monteiro
Manuel A. Gómez*
Affiliation:
Universidade da Coruña
Goncalo Monteiro
Affiliation:
Georgia State University
*
Address correspondence to: Manuel A. Gómez, Department of Economics, University of A Coruña, Campus de Elviña, 15071 A Coruña, Spain. e-mail: [email protected]. Phone: +34 881012439. Fax: +34 981167070.
Get access Rights & Permissions [Opens in a new window]

Abstract

We devise an endogenous growth model in which agents’ utility depends not only on current consumption but also on the pleasure of anticipated future consumption. We consider the case in which agents derive satisfaction from their own anticipatory feelings—inward-looking or internal anticipation—and the case in which agents derive utility from anticipation of other people’s future consumption—outward-looking or external anticipation. We characterize the effects of introducing a forward-looking consumption reference on the dynamics of the economy. Whereas the inward-looking economy features transitional dynamics, the outward-looking economy does not. The distortions caused by the externality in the economy with external habits can be corrected by subsidizing income at a time-varying rate or by means of a tax on consumption at a decreasing rate. We contrast the equilibrium dynamics of our specification to the more standard specification of the habit formation consumption reference point. Numerical simulations supplement the theoretical analysis.

Keywords

Anticipated ConsumptionEndogenous GrowthOptimal Policy
Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 5 , July 2022 , pp. 1202 - 1238
Copyright
© Cambridge University Press 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Detailed comments of an anonymous referee are gratefully acknowledged. Manuel A. Gómez gratefully acknowledges financial support by the Spanish Ministerio de Economía, Industria y Competitividad, and the European Regional Development Fund (ERDF) under Grant No. ECO2017-85701-P.

References

REFERENCES

Abel, A. B. (1990) Asset prices under habit formation and catching up with the Joneses. American Economic Review 80, 38–42.Google Scholar
Aloui, R. (2013) Deep habits and the macroeconomic effects of government debt. Macroeconomic Dynamics 17, 1659–1686.CrossRefGoogle Scholar
Alvarez-Cuadrado, F., Monteiro, G. and Turnovsky, S. J. (2004) Habit formation, catching up with the Joneses, and economic growth. Journal of Economic Growth 9, 47–80.CrossRefGoogle Scholar
Becker, G. S. and Murphy, K. M. (1988) A theory of rational addiction. Journal of Political Economy 96, 675–700.CrossRefGoogle Scholar
Bertsekas, D. P. (2005). Dynamic Programming and Optimal Control. Volume I. 3rd ed. Belmont, MA: Athena Scientific.Google Scholar
Born, B. and Pfeifer, J. (2020) The New Keynesian wage Phillips curve: Calvo vs. Rotemberg. Macroeconomic Dynamics 24, 1017–1041.CrossRefGoogle Scholar
Bossi, L. and Gomis-Porqueras, P. (2009) Consequences of modeling habit persistence. Macroeconomic Dynamics 13, 349–365.CrossRefGoogle Scholar
Campbell, J. Y. and Cochrane, J. H. (1999) By force of habit: A consumption-based explanation of aggregate stock market behavior. Journal of Political Economy 107, 205–251.CrossRefGoogle Scholar
Carroll, C. D., Overland, J. and Weil, D. N. (1997) Comparison utility in a growth model. Journal of Economic Growth 2, 339–367.CrossRefGoogle Scholar
Carroll, C. D., Overland, J. and Weil, D. N. (2000) Saving and growth with habit formation. American Economic Review 90, 341–355.CrossRefGoogle Scholar
Christiano, L. J., Eichenbaum, M. and Evans, C. L. (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy 113, 1–45.CrossRefGoogle Scholar
Chun, H. H., Diehl, K. and MacInnis, D. J. (2017) Savoring an upcoming experience affects ongoing and remembered consumption enjoyment. Journal of Marketing 81, 96–110.CrossRefGoogle Scholar
Constantinides, G. M. (1990) Habit formation: A resolution of the equity premium puzzle. Journal of Political Economy 98, 519–543.CrossRefGoogle Scholar
Dockner, E. J. and Feichtinger, G. (1993) Cyclical consumption patterns and rational addiction. American Economic Review 83, 256–63.Google Scholar
Duesenberry, J. S. (1949). Income, Saving and the Theory of Consumer Behaviour. Cambridge, MA: Harvard University Press.Google Scholar
Dupor, B. and Liu, W. F. (2003) Jealousy and equilibrium overconsumption. American Economic Review 93, 423–428.CrossRefGoogle Scholar
Faria, J. R. and McAdam, P. (2013) Anticipation of future consumption: A monetary perspective. Journal of Money, Credit and Banking 45, 423–447.CrossRefGoogle Scholar
Faria, J. R. and McAdam, P. (2018) The Green Golden rule: Habit and anticipation of future consumption. Economics Letters 172, 131–133.CrossRefGoogle Scholar
Fisher, W. H. and Hof, F. X. (2000) Relative consumption, economic growth, and taxation. Journal of Economics 72, 241–262.CrossRefGoogle Scholar
Fuhrer, J. C. (2000) Habit formation in consumption and its implications for monetary-policy models. American Economic Review 90, 367–390.CrossRefGoogle Scholar
Galí, J. (1994) Keeping up with the Joneses: Consumption externalities, portfolio choice, and asset prices. Journal of Money, Credit, and Banking 26, 1–8.CrossRefGoogle Scholar
Gilovich, T. and Kumar, A. (2015) We’ll always have Paris: The hedonic payoff from experiential and material investments. In: Olson, J. M. and Zanna, M. P. (eds.), Advances in Experimental Social Psychology, vol. 51, Chapter 4, pp. 147–187. San Diego, USA: Academic Press.Google Scholar
Gilovich, T., Kumar, A. and Jampol, L. (2015) A wonderful life: Experiential consumption and the pursuit of happiness. Journal of Consumer Psychology 25, 152–165.CrossRefGoogle Scholar
Gómez, M. A. (2008) Convergence speed in the Ak endogenous growth model with habit formation. Economics Letters 100, 16–21.CrossRefGoogle Scholar
Gómez, M. A. (2015) Equilibrium dynamics in an endogenous growth model with habit formation and elastic labor supply. Macroeconomic Dynamics 19, 618–642.CrossRefGoogle Scholar
Harris, C. R. (2012) Feelings of dread and intertemporal choice. Journal of Behavioral Decision Making 25, 13–28.CrossRefGoogle Scholar
Hestenes, M. R. (1996). Calculus of Variations and Optimal Control Theory. New York: Wiley.Google Scholar
Houthakker, H. and Taylor, L. D. (1966) Consumer Demand in the United States, 1929–1970: Analyses and Projections, 1st ed. Cambridge, MA: Harvard University Press.Google Scholar
Jevons, W. S. (1871) The Theory of Political Economy. London and New York: MacMillan & Co.Google Scholar
Kocher, M. G., Krawczyk, M. and van Winden, F. (2014) ‘Let me dream on!’ Anticipatory emotions and preference for timing in lotteries. Journal of Economic Behavior and Organization 98, 29–40.CrossRefGoogle Scholar
Koopmans, T. C. (1960) Stationary ordinal utility and impatience. Econometrica 28, 287–309.CrossRefGoogle Scholar
Köszegi, B. and Rabin, M. (2006) A model of reference-dependent preferences. Quarterly Journal of Economics 121, 1133–1165.Google Scholar
Köszegi, B. and Rabin, M. (2007) Reference-dependent risk attitudes. American Economic Review 97, 1047–1073.CrossRefGoogle Scholar
Kumar, A., Killingsworth, M. A. and Gilovich, T. (2014) Waiting for Merlot: Anticipatory consumption of experiential and material purchases. Psychological Science 25, 1924–1931.CrossRefGoogle ScholarPubMed
Kurz, M. (1968) Optimal economic growth and wealth effects. International Economic Review 9, 348–357.CrossRefGoogle Scholar
Kuznitz, A., Kandel, S. and Fos, V. (2008) A portfolio choice model with utility from anticipation of future consumption and stock market mean reversion. European Economic Review 52, 1338–1352.CrossRefGoogle Scholar
Leonard, D. and van Long, N. (1992). Optimal Control Theory and Static Optimization in Economics. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
Li, B., Liu, Q. and Pei, P. (in press) Investigating the role of money in the identification of monetary policy behavior: A Bayesian DGSE perspective. Macroeconomic Dynamics. https://doi.org/10.1017/S1365100519000762 Google Scholar
Loewenstein, G. (1987) Anticipation and the valuation of delayed consumption. Economic Journal 97, 666–684.CrossRefGoogle Scholar
Loewenstein, G. and Elster, J. (eds.) (1992) Choice Over Time. New York: Rusell Sage Foundation.Google Scholar
Marshall, A. (1890) Principles of Economics: An Introductory Volume. London: MacMillan & Co.Google Scholar
Monteiro, G., Cook, A. and Dey, S. (2013) Optimal tax policy under habit formation and capital utilization. Journal of Macroeconomics 37, 230–248.CrossRefGoogle Scholar
Monteiro, G. and Turnovsky, S. J. (2016) Anticipated consumption and its impact on capital accumulation and growth: ‘Forward-looking’ vs. ‘backward-looking’ consumption reference. International Journal of Economic Theory 12, 203–232.CrossRefGoogle Scholar
Rae, J. (1834) Statement of Some New Principles on the Subject of Political Economy: Exposing the Fallacies of the System of Free Trade, and Some Other Doctrines Maintained in the ‘Wealth of Nations’. Boston: Hilliard, Gray, and Co. Google Scholar
Rebelo, S. (1991) Long-run policy analysis and long-run growth. Journal of Political Economy 99, 500–521.CrossRefGoogle Scholar
Ryder, H. E. and Heal, G. M. (1973) Optimal growth with intertemporally dependent preferences. Review of Economic Studies 40, 1–31.CrossRefGoogle Scholar
Samuelson, P. A. (1952) Probability, utility, and the independence axiom. Econometrica 20, 670–678.CrossRefGoogle Scholar
Smets, F. and Wouters, R. (2003) An estimated dynamic stochastic general equilibrium model of the euro area. Journal of the European Economic Association 1, 1123–1175.CrossRefGoogle Scholar
Taylor, L. D. and Houthakker, H. (2010) Consumer Demand in the United States: Prices, Income, and Consumption Behavior, 3rd ed. New York: Springer.CrossRefGoogle Scholar
Turnovsky, S. J. and Monteiro, G. (2007) Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences. European Economic Review 51, 479–504.CrossRefGoogle Scholar
Zou, H. (1998) The spirit of capitalism, social status, money, and accumulation. Journal of Economics 68, 219–233.CrossRefGoogle Scholar