The paper shows that, in a linear growth model of the Macroeconomy, the subtractive specification of preferences represents the only functional form for which the set of competitive equilibria under external habits is identical to that under internal habits.
On the equivalence between internal and external habits in a growth model with subtractive preferences
FERRAGUTO, GIUSEPPE
2008
Abstract
The paper shows that, in a linear growth model of the Macroeconomy, the subtractive specification of preferences represents the only functional form for which the set of competitive equilibria under external habits is identical to that under internal habits.
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