We estimate a demand system for ten nonalcoholic beverages to disentangle effects of prices, expenditures, advertising, and demographics on demand for nonalcoholic beverages for 1999 through 2010. We find that changes in demographic composition of the population between 1999 and 2008 played a much bigger role in observed purchasing patterns for recently introduced beverages like soy, rice, and almond drinks, isotonic and energy drinks, and bottled water whereas changes in prices and advertising expenditures largely explained declining demand for milk, regular carbonated soft drinks, and coffee and tea. However, between 2008 and 2010, declining demand for most nonalcoholic beverages was largely driven by income-led decreases in expenditures.

Hedging is one of the most important risk management decisions that farmers make and has a potentially large role in the level of profit eventually earned from farming. Using panel data from a survey of Georgia farmers that recorded their hedging decisions for 4 years on four crops, we examine the role of habit, demographics, farm characteristics, and information sources on the hedging decisions made by 57 different farmers. We find that the role of habit varies widely and that estimation of a single habit effect suffers from aggregation bias. Thus, modeling farmer-level heterogeneity in the examination of habit and hedging is crucial.

Empirical studies find that expenditures on both durable and nondurable goods fall following a contractionary monetary policy shock. However, in standard two-sector models with staggered nondurable goods prices and flexible durable goods prices, consumption of durables rises whereas that of nondurables falls in response to a contractionary policy shock. To resolve this co-movement problem, I extend the model to include a realistic financial friction that firms must pay for their productive inputs prior to production, i.e., working capital, along with habit formation in nondurable goods consumption. Following a positive interest rate shock, the working capital channel raises production costs, thereby discouraging production of both durable and nondurable goods. Furthermore, habit formation induces households to smooth the growth rate of nondurable goods consumption, and hence mitigates the fall in the nondurable goods sector. The model solves the co-movement problem and successfully generates a more sensitive response in the durable goods sector, as observed in the data.

We study the general equilibrium properties of two growth models with overlapping generations, habit formation, and endogenous fertility. In the neoclassical model, habits modify the economy's growth rate and generate transitional dynamics in fertility; stationary income per capita is associated with either increasing or decreasing population and output, depending on the strength of habits. In the AK specification, growing population and increasing consumption per capita require that the habit coefficient lie within definite boundaries; outside the critical interval, positive growth is associated with either declining consumption due to overcrowding, or extinction paths with declining population. In both frameworks, habits reduce fertility: the trade-off between second-period consumption and spending for bequests prompts agents to decrease fertility in order to make parental altruism less costly. This mechanism suggests that status-dependent preferences may explain part of the decline in fertility rates observed in most developed economies.

One of the most prominent and consistent findings of the recent empirical literature on fiscal policy is that investment expenditure is crowded out by public spending in the short run. In this contribution, we address this empirical fact using a dynamic general equilibrium model and show that the introduction of habit-forming behavior plays a major role in accommodating the observed negative relationship between investment and government expenditure. Our numerical experiments point out the role of consumption inertia in determining the reactions of the open economy: as habit persistence gets stronger, fiscal expansion crowds out real consumption by a smaller amount and investment by a larger one, while the current account enters into a greater deficit.

A monetary cash-in-advance model is known to be prone to real indeterminacy if the intertemporal elasticity of substitution in consumption is sufficiently low. Moreover, if the model features habit formation in consumption, the scope of indeterminacy increases substantially. This paper shows that many of the nominal frictions and real rigidities commonly used in the New Keynesian paradigm act to decrease the scope of this indeterminacy. These frictions include stickiness in prices and wages, adjustment costs in investment, and variable capacity utilization. When they are all used together in the model, the problem of indeterminacy nearly vanishes, even when habit formation in consumption is allowed.

In a two-country world economy, endogenous interest rate adjustment makes one country's consumption-habit dynamics affected by the other country's habit. External indebtedness depends crucially on international differences in habit-adjusted net output less habitual living standard. Interest rate adjustment enlarges the consumption impact of an income shock. Consistent with the empirical facts, the habit parameter of a large country would thus be underestimated, and the current account volatility overestimated, if they were estimated using a small-country model. An increase in fiscal spending in one country can benefit the country and harm the neighbor one due to reversed intertemporal terms-of-trade effects.

Most of empirical studies find evidence of the J-Curve, but recent results cast doubt over its standard explanation. By addressing the countercyclicality of the current account and its dynamic link with the terms of trade, this paper revisits the J-Curve phenomenon using a two-good dynamic optimizing small open economy model allowing for a habit-forming behavior and capital adjustment costs. While the nonmonotonic adjustment of the current account relies on the degree of habit persistence in consumption and the magnitude of capital installation costs after an unanticipated terms of trade worsening, we show that the sizes of the long-run intertemporal elasticity of substitution under time nonseparable preferences and the import content of real consumption and investment matter as well after a temporary perturbation. As a consequence of an intertemporal speculation effect and an inertia effect, the small country reaches the long-term equilibrium with higher foreign assets after a short-lived terms of trade worsening.

This paper studies asset returns adopting an alternative strategy to assess a model's goodness of fit. Based on spectral analysis, this approach considers a model as an approximation to the process generating the observed data, and characterizes the dimensions for which the model provides a good approximation and those for which it does not. Our aim is to offer new evidence regarding the size and the location of approximation errors of a set of stochastic growth models considered to be decisive steps in the progress of the asset pricing research program. Our specific objective is to reevaluate the results of Jermann's (1998) model extending the calculations to the spectral domain. Spectral results are relatively satisfactory: the benchmark model needs very few contributions of approximation errors to account for the empirical equity premium. Second, the location of the approximation errors, when they are substantial, seems to be essentially concentrated at high frequencies.

The paper studies the effects of an expansionary fiscal policy in a general equilibrium model of a small open economy. Households are assumed to possess habit-forming, endogenous rates of time preference. In response to fiscal shocks, the model generates cyclical endogenous persistence and procyclical time paths for consumption, employment, and investment, as well as a countercyclical path for the current account. Furthermore, fiscal shocks are shown to have positive long-run effects on output and negative long-run effects on consumption.