TEL  Vol.5 No.1 , February 2015
The New Open Economy Macroeconomics of Working Habits
ABSTRACT
This paper develops a new open economy macroeconomics model by allowing for habit formation in labor supply. The main findings of our analysis are that 1) an increase in the importance of working habits strengthens the effect of monetary policy shocks on relative consumption, weakens on change in the equilibrium exchange rate, and 2) an increase in the importance of working habits strengthens the response of relative consumption and the equilibrium exchange rate change to fiscal policy shocks.

Cite this paper
Wang, Y. , Liu, Q. , Guan, B. and Sui, X. (2015) The New Open Economy Macroeconomics of Working Habits. Theoretical Economics Letters, 5, 125-131. doi: 10.4236/tel.2015.51017.
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