NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Habit Persistence and Durability in Aggregate Consumption: Empirical Tests

Wayne E. Ferson, George M. Constantinides

NBER Working Paper No. 3631 (Also Reprint No. r1707)
Issued in February 1991
NBER Program(s):   ME

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.

download in pdf format
   (510 K)

email paper

This paper is available as PDF (510 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3631

Published: Journal of Financial Economics, Vol. 29, No. 2, pp. 199-240, (October 1991)

Users who downloaded this paper also downloaded these:
Abel w3279 Asset Prices under Habit Formation and Catching up with the Joneses
Friedman Introduction to "A Theory of the Consumption Function"
Braun, Constantinides, and Ferson w4104 Time Nonseparability in Aggregate Consumption: International Evidence
Campbell and Cochrane w4995 By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
Abel w6683 Risk Premia and Term Premia in General Equilibrium
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us