TIME NONSEPARABILITY IN AGGREGATE CONSUMPTION - INTERNATIONAL EVIDENCE

We study consumption-based asset pricing models which allow for both habit persistence and durability of consumption goods, using quarterly consumption and asset return data for six countries. We estimate the parameters representing habit persistence or durability, risk aversion and time preference for each of the countries. We find that time-nonseparable preferences improve the fit of the model. When the nonseparability parameter is statistically significant, its magnitude indicates that the effect of habit persistence dominates the effect of durability in consumption expenditures. However, the international evidence for habit persistence is weaker than the evidence for the United States.