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M. Obstfeld, “Macroeconomic Policy, Exchange-Rate Dynamics, and Optimal Asset Accumulation,” Journal of Political Economy, Vol. 89, No. 6, 1981, pp. 1142-1161. doi:10.1086/261026

has been cited by the following article:

• TITLE: Exchange Rate and Current Account Dynamics with Habits over Consumption and Money Holdings

  AUTHORS: Ichiro Gombi, Shinsuke Ikeda

  KEYWORDS: Habit Formation; Money; Exchange Rate; Current Account

  JOURNAL NAME: Modern Economy, Vol.4 No.7, July 17, 2013

  ABSTRACT: Incorporating two independent habits over consumption and money holdings into a small country model, we examine the adjustment dynamics of the current account and the exchange rate to expansionary monetary and fiscal shocks under two alternative policy regimes: (1) the endogenous income transfer regime; and (2) the endogenous fiscal spending regime. In response to the shocks under regime (1), the exchange rate depreciates on impact and in the long run whereas it appreciates (depreciates) in transition if preferences for real money balances exhibit distant (adjacent) complementarity. Under regime (2), the consumption habits and the monetary habits jointly generate possibly non-monotonic current account dynamics. An induced increase in fiscal spending in regime (2) can generate a current account surplus in the case where the monetary habits exhibit strong distant complementarity.