Investigation on Habit Formation, Risk Aversion and Intertemporal Substitution in Consumption of Iranian Households by GMM Approach

Authors

Sistan and Baluchestan

Abstract

Consumption is the principal feature of Iran’s Gross National Production. Therefore, recognizing of factors that influence it is quite crucial. This article, investigates habit formation, durability, relative risk aversion and intertemporal substitution in consumption expenditures of Iranian households. For empirical study, at first, we constructed two weighted portfolio of the main assets return that households hold them. Then, by using generalized method of moments, we examined some models with the mentioned factors in pattern of households’ consumption for 1979-2012 periods. Our Empirical findings indicated that for durable goods, the effect of habit persistence dominated the effect of durability in consumption expenditures and for semi durable goods vice versa. Also, for semi-durable and durable goods the effect of durability dominated the effect of habit formation. Furthermore, the results indicate that coefficients of relative risk aversion and elasticity of intertemporal substitution are between 0.25 to 0.95 and 1.05 to 4, respectively.    JEL Classification: C26, D91, G11

Keywords