Habit formation in a monetary growth model

This paper introduces the hypothesis of habit formation in consumption in the Sidrauski [Am. Econ. Rev. Papers Proc., 57 (1967) 534] model. A number of results are derived: (1) as in the Sidrauski model money is superneutral and the Friedman rule still provides the optimal quantity of money; (2) the demand for money in this model is greater than in the Sidrauski model; (3) the money demand reflects the habit persistence related to past consumption and the rate of time preference, and it is more sensitive to changes in inflation and nominal interest rates than the Sidrauski model.