Frames, contexts, and history-dependent macroeconomic dynamics

Abstract

In this paper, we provide a general framework for dynamic macroeconomic models that incorporate history and context dependencies. Such features arise in several strands in the economic literature including habit formation based on consumption or other economic variables, decision theory, health economics, sports economics, environmental economics, and law and economics. Our approach introduces a memory function to account for how history is formed. This allows us to encompass a wide range of standard economic models while adapting to emerging modelings such as circular economy models. We establish the corresponding optimization results and develop dynamic programming tools so that the standard machinery can still be applied directly despite the specific difficulties induced by history-dependence.