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Author: | Guariglia, A. Rossi, M. |
Title: | Consumption, habit formation, and precautionary saving: evidence from the British Household Panel Survey |
Journal: | Oxford Economic Papers
2002 : JAN, VOL. 54:1, p. 1-19 |
Index terms: | Consumption Statistical methods United Kingdom |
Language: | eng |
Abstract: | The authors generalise Weil's (1993) model, which is based on hybrid non-expected utility preferences, by allowing for habit formation. They use this generalised model to derive an Euler equation, where current consumption changes depend on lagged changes and labour income risk. They then estimate this Euler equation using data from the British Household Panel Survey for the period 1992-97. The results suggest that both labour income risk and past changes in consumption play an important role in determining current changes in consumption. The authors then compare the model with habits with the one without, and strongly reject the latter. |
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