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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 12, No. 1, pp.1-25
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 1999
Received Sep 1998 Revised Nov 1998

By Force of Habit Formations and Exchange Rate Movements

Yongseung Jung
Associate Research Fellow, Korea Institute for Industrial Economics and Trade, Cheong Ryang P.O. Box 205, Seoul, 130-742, Korea jungys@kiet.re.kr

JEL Classifications: F30, F40

Abstract

This paper sets up a habit persistence monetary model in line with Campbell and Cochrane (1995) with transaction costs in consumption. It discusses the behavior of exchange rates and consumption as well as other variables to various shocks. This paper shows that the habit persistence model fails to explain the exchange rate fluctuations and the movement of consumption due to a locally large value of relative risk aversion.

Acknowledgments

I would like to thank Alan Stockman and Mark Bils for helpful comments and conversations. An anonymous referee’s helpful comments are also acknowledged. All errors are my own.

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