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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26455
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| Title: | Habit Persistence and Keeping Up with the Joneses:Evidence from Micro Data |
| Authors: | Ravina, Enrichetta |
| Issue Date: | Nov-2005 |
| Series/Report no.: | FIN-05-046 |
| Abstract: | This paper provides evidence that habit persistence is an important
determinant of household consumption choices, in a setting that allows
for heterogeneity and household-specific interest rates. By estimating
Euler equations for a representative sample of U.S. credit-card account
holders, I find that the strength of external habit, captured by the
fraction of the consumption of the reference group that enters the
utility function, is 0.290, and that the strength of internal habit,
represented by household past consumption, is 0.503. My results are
robust to the inclusion of various measures of economic activity in the
regression, tests for the presence of aggregate shocks, liquidity
constraints, precautionary saving motives, and learning. Aggregation of
the Euler equations as a weighted average of individual marginal rates
of substitution accounts for heterogeneity and market incompleteness and
preserves the results. |
| URI: | http://hdl.handle.net/2451/26455 |
| Appears in Collections: | Finance Working Papers
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