A bstract-A nonparametric time series test is applied to the buyers' and sellers' (BLS) prices collected by George Stigler and James Kindahl. Although BLS pnrces are more ngid, the two senes of pnrces are sufficiently similar in behavior dunrng two business cycles so that one can reject the null that each is generated by different stochastic processes. Moreover, each series reacts similarly in favor of the administered price hypothesis: in recessions and in the initial year of recovery, concentrated pnrces are more rigid and perversely flexible than unconcentrated pnrces, which are characterized by random movements and changes in the direction of real demand.

By incorporating habit formation into an overlapping-generations economy, we show that the middle-aged consumers’ savings decision has a substantial impact on the equity premium. The higher incentive for savings for the middle-aged, resulting from the habit formation preference, causes an even higher demand for bonds and a lower demand for equity, which eventually generates a lower risk-free rate and a higher required return for holding equity than does the framework of non-habit forming models. Calibration results verify that the habit formation setting, together with an OLG framework is capable of yielding lower bond returns and higher equity returns than the standard CRRA utility models, and the borrowing constraint imposed on the young-aged consumers amplifies the positive effect of habit formation on the equity premium. The findings imply that habit formation preferences within the overlapping-generations framework under the borrowing-constrained economy can provide a more improved explanation of the equity premium puzzle.