Habit formation and durability and consumption: some evidence from income quintile groups in Japan

The present study analysed Japan's stock market by modelling habit formation and durable effects in consumption, based on data from income quintile groups. The sample period for the empirical research was January 1971 through December 1993. Results of this analysis revealed that durable effects were more influential than habit formation effects for all income quintile groups. This fact leads to wider fluctuations in consumption in Japan, and results in good performance with this type of modelling.