BoE paper identifies strong habit-formation in savings

Bank of England

A Bank of England paper published on Monday finds evidence of a policy bias in models that do not fully capture changes in the savings preferences of households facing external shocks.

Michael Hatcher, the paper's author, uses a simple New Keynesian model to analyse the conduct of monetary policy in an environment where households' desire to accumulate savings is driven by shocks to the economy. The authors note that a key task for monetary policy is to understand the transmission mechanism of

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