Dynamic Consumption Behavior: Evidence from Japanese Household Panel Data (Revised version)

Abstract

Household consumption and saving behavior have been the central theme of recent macroeconomic literature. Following the work of Robert Hall (1978) and a series of papers by Fumio Hayashi, the focus of the literature has been on dynamic consumption behavior. Using the Family Income and Expenditure Survey (FIES), we conducted a dynamic panel analysis of consumption behavior. We examined intertemporal smoothing and the durability of consumption behavior with or without liquidity constraints. Our results are summarized as follows: (1) households with debt as well as debt-free households with low annual incomes and net savings faced disposable income constraints; (2) for these types of households, parameter values of lagged dependent variables between MLE and GMM are very close and therefore statistically significant and the implications for each remain more or less the same; (3) debt-free households with high annual incomes and net savings also faced a disposable income constraint in MLE that is not expected in the permanent income-lifecycle hypothesis.dynamic consumption, panel data, liquidity constraints