8.13. Habit formation and serial correlation in consumption growth. Suppose

that the utility of the representative consumer, individual i, is given by T t=1[1/(1 + ρ)

t

](Cit/Zit)

1−θ

/(1 − θ), ρ > 0, θ > 0, where Zit is the “reference”

level of consumption. Assume the interest rate is constant at some level, r, and that there is no uncertainty.