Habit formation in household consumption: evidence from Japanese panel data

Habit formation in consumption has important implications for the effects of macroeconomic policies. Using micro data from the Japanese Panel Survey of Consumers (JPSC) for the period 1998-2004, an Euler equation à la Dynan (2000) allowing for time-nonseparablity in consumer preferences is estimated. In contrast to previous, macro data-based studies on consumption in Japan, the estimates yield no evidence of habit formation and appear consistent with durability in consumption.