Habit Formation: The Growth Of Macro Economy

This paper mainly analyzes a general equilibrium economy with homogeneous agents who have habit formation preferences. The consumer's preference not only depends on current consumption, but also on his consumption history. We know that habit formation affect consumption and preference, therefore it is necessary to make research on model of habit formation. The main task of this paper is trying to establish and analyze models of habit formation on the basis of the hard works made by former persons. Besides, I mainly analyze both the dynamic characteristic of the economy and the relation of some economy variable under this model. The content of this paper is:In chapter one, the development of Growth Theory is briefly reviewed and the needed mathematic tools-- optimization method are presented. In chapter two, I take Diamond model as a template, giving the sufficient condition for the existence of a steady state considering habit formation. In chapter three, extensions of the models of Ramsey are made, and using the continue time model of economy, I found the path of economy growth is saddle-point steady even if habit formation exist. The chapter four is an important one, in this chapter the new utility with habit formation provides a mathematical explanation for the phenomena that the rate of consumption is lower and the rate of saving is higher. At the same time, the ratio of consumption-leisure is provided. In chapter five, I introduced the hypothesis of habit formation in consumption in the Sidrauski model. A number of results are derived when I combine Sidrauski model with habit formation. The chapter six is another important one in this paper, constructing a utility function based on habit formation in the Merton model, and employing a continuous time stochastic endogenous growth model. I derived a number of results about habit formation by the method of dynamic on economic growth.Both the foundation of model with habit formation and analysis of the model are based on some theory. So it is drawn the conclusion that the models are actual significant and referenced value.