HABIT FORMATION AND PRECAUTIONARY SAVING: EVIDENCE FROM THE KOREAN HOUSEHOLD PANEL STUDIES

Abstract

We examined the evidence of precautionary saving and Constantinides (1990) type habit formation model by using the Korean Household Panel Studies, which has six years of time series observations and thousands of cross section observations. Employing the dynamic panel data estimation method, we found that the estimates of parameters corresponding to the degree of habit formation and precautionary saving are statistically insignificant for food consumption, but statistically significant or at least marginally significant for nondurables and services consumption.Habit Formation, Precautionary Saving, Korean Household Panel Studies, Dynamic Panel Data Estimation