Habit Persistence and Durability in Aggregate Consumption: Empirical Tests / Wayne E. Ferson, George M. Constantinides.

Format:

Book

Author/Creator:

Ferson, Wayne E.

Contributor:

National Bureau of Economic Research.

Constantinides, George M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3631.

NBER working paper series no. w3631

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Habit Persistence and Durability in Aggregate Consumption

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Summary:

Habit persistence in consumption preferences and durability of consumption goods are two hypotheses which imply time-nonseparability in the derived utility for consumption expenditures. We study a simple model with both effects, in which lagged consumption expenditures enter the Euler equation. Habit persistence implies that the coefficients on the lagged expenditures are negative, while durability implies positive coefficients. If both effects are present, then estimating the sign of the coefficients addresses the question as to which of the two effects is dominant. Earlier empirical work on monthly data supported the durability of consumption expenditures. We estimate and test the Euler equation using monthly, quarterly and annual data and find evidence that habit persistence dominates the effect of durability.

Notes:

Print version record

February 1991.