Consumption and Habits: Evidence from Panel Data

22 Pages Posted: 28 Dec 2004

See all articles by Raquel Carrasco

Raquel Carrasco

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

J. Maria Labeaga Azcona

Universidad Nacional de Educacion a Distancia (UNED) - Faculty of Economics

David Lopez-Salido

Board of Governors of the Federal Reserve System

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Abstract

The purpose of this paper is to test for the presence of habit formation in consumption decisions using household panel data. We apply the test proposed by Meghir and Weber (1996) to a Spanish panel data set in which households are observed for up to eight consecutive quarters. This temporal dimension is crucial, because it allows us to take into account time invariant unobserved heterogeneity across households ('fixed effects') and, therefore, to investigate whether the relationship between current and past consumption reflects habits or heterogeneity. Our results confirm the importance of accounting for fixed effects when analysing intertemporal consumption decisions allowing for time non-separabilities.

Suggested Citation

Carrasco Perea, Raquel and Labeaga Azcona, José Maria and Lopez-Salido, David, Consumption and Habits: Evidence from Panel Data. Economic Journal, Vol. 115, No. 500, pp. 144-165, January 2005. Available at SSRN: https://ssrn.com/abstract=639747

Raquel Carrasco Perea (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9583 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

José Maria Labeaga Azcona

Universidad Nacional de Educacion a Distancia (UNED) - Faculty of Economics ( email )

Calle Senda del Rey, 11
28040 Madrid
Spain
+34 91 398 7811 (Phone)
+34 91 398 6339 (Fax)

David Lopez-Salido

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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