English
Valencià
Our model reconciles with the data by closing the gap between cross-country correlations of consumption and output (quantity anomaly). The model predicts positive international correlations in investment and employment of the magnitude observed in the data (international comovement puzzle). The key ingredient is the preference ordering that implies internal habit formation over the composite of consumption and leisure. These lifestyle habits (i) reduce wealth effect on labor supply, which helps explain comovement of employment and output; (ii) reduce Edgeworth substitutability between consumption and leisure, which helps explain comovement of consumption; and (iii) discourage changes in consumption growth, which helps explain comovement of investment.