The Habit Persistence Hypothesis: Empirical Evidence from Jamaica

Bamikole, Oluwafemi (2013): The Habit Persistence Hypothesis: Empirical Evidence from Jamaica.

Abstract

This paper seeks to empirically verify if the habit persistence phenomenon holds in the Jamaican economy. The results of the GMM time series estimation show the existence of habit formation by Jamaican consumers. Past consumption habits affect the growth rate of consumption, consequently in order to build the confidence of consumers in the Jamaican economy, the inflation rate, foreign and domestic interest rates have to be moderately adjusted to encourage good consumption habits.

• Item Type: MPRA Paper
• Commentary on: Eprints 0 not found.
• Language: English
• Keywords: Habit persistence, GMM, consumption growth, Jamaica
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

References

References Brown, T.M. (1952). “Habit Persistence and Lags in Consumer Behaviour”, Econometrica, Vol.20, No.3.

Dias, M. (2008). Microeconometrics Lecture Notes Spring Notes. UCL- Department of Economics. Retrieved from http://www.homepages.ucl.ac.uk/

Dickey, D.A. & Fuller, W.A. (1979). “Distribution of Estimators for Autoregressive Time Series with a Unit Root”, Journal of American Statistical Association, 74, p. 427-431

Eichenbaum, M.S., Hansen, L.P., & Singleton, K.J. (1988) “A Time-Series Analysis of Representative Agent Models of Consumption and Leisure Choices under Certainty”. Quarterly Journal of Economics 103, 51-78.

Ferson, W.E., & Constantinides, G.M. (1991). Habit persistence and Durability in Aggregate Consumption. National Bureau of Economic Research Working Paper No. 3631

Fuhrer, J.C. (2002) “Habit Formation in Consumption and its Implications for Monetary Policy Models”. American Economic Review.

Hansen, L.P. (1982). “Large Sample Properties of Generalized Method of Moments Estimators, Econometrica, Vol.50, No.4, 1029-1054.

Kiley, M.T. (2007) Habit Persistence, Non-Separability between Consumption and Leisure, or Rule-of-Thumb Consumers; Which accounts for the Predictability of Consumption Growth? Finance and Economics Discussions Series, Divisions of Research & Statistics and Monetary Affairs. Federal Reserve Board, Washington, D.,C. Pijon-Mas, D., et al (2002). Precautionary Savings and Wealth Distribution under Habit Formation. Retrieved from http://www.econ.umn.edu/~vroj/papers/jmehabits2.pdf.

Singh, B. & Ullah, A. (1976) “The Permanent Income versus Habit Persistence Hypothesis”. Review of Economics and Statistics, Vol. 58, No.1. pp.96-103.

Soderlind,P.(2002). Lecture Notes for Econometrics. Gallen: University of St. Gallen

Rossi, M. (nd). Household’s Consumption Under Habit Formation Hypothesis. Evidence from Italian Households using the Survey of Household and Wealth. Retrieved from http://www. sx.ac.uk/economics/discussion-papers/papers-text/dp595.pdf

Winder, C.A., & Palm, F.C. (1990). Stochastic Implications of the Life-Cycle Consumption Model under Rational Habit Formation. Working paper. University of Limburg