Can habit formation solve the consumption anomaly in the two-sector business cycle model?

This paper examines the regions of indeterminacy in a two-sector real busin ess cycle model with consumption habit formation and productive externaliti es. It is shown that the indeterminacy result is largely unaffected when co nsumption habits are introduced. The paper also demonstrates that habit for mation lessens the countercyclical behavior of consumption which is present in the original Benhabib and Farmer (1996) model.