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Information, habits, and consumption behavior: evidence from micro data

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  • Kuismanen, Mika
  • Pistaferri, Luigi

Abstract

Most of the empirical literature on consumption behaviour over the last decades has focused on estimating Euler equations. However, there is now consensus that data-related problems make this approach unfruitful, especially for answering policy relevant issues. Alternatively, many papers have proposed using the consumption function to forecast behaviour. This paper follows in this tradition, by deriving an analytical consumption function in the presence of intertemporal non-separabilities, "superior information", and income shocks of different nature, both transitory and permanent. The results provide evidence for durability, and show that people are relatively better at forecasting short-term rather than long-term shocks JEL Classification: D11, D12, D82, E21

Suggested Citation

  • Kuismanen, Mika & Pistaferri, Luigi, 2006. "Information, habits, and consumption behavior: evidence from micro data," Working Paper Series 572, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2006572
    Note: 328745
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Willman, Alpo, 2007. "Sequential optimization, front-loaded information, and U.S. consumption," Working Paper Series 765, European Central Bank.
    2. IWAMOTO Koichiro, 2011. "Food Consumption Expenditure and Habit Formation: Evidence from Japanese Household Panel Data," ESRI Discussion paper series 264, Economic and Social Research Institute (ESRI).
    3. Dragone, D. & Ziebarth, N.R., 2015. "Non-Separable Time Preferences and Novelty Consumption: Theory and Evidence from the East German Transition to Capitalism," Health, Econometrics and Data Group (HEDG) Working Papers 15/28, HEDG, c/o Department of Economics, University of York.
    4. Koichiro Iwamoto, 2013. "Habit formation in household consumption: evidence from Japanese panel data," Economics Bulletin, AccessEcon, vol. 33(1), pages 323-333.
    5. Dragone, Davide & Ziebarth, Nicolas R., 2017. "Non-separable time preferences, novelty consumption and body weight: Theory and evidence from the East German transition to capitalism," Journal of Health Economics, Elsevier, vol. 51(C), pages 41-65.

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    More about this item

    Keywords

    consumption; Durability; habit persistence; Panel data; Superior Information;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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