Seasonality and habit persistence in a life cycle model of consumption

The allocation of non-durable consumers' expenditure over the four quarters of the year reflects choices made by consumers, implying a utility function exhibiting seasonality. Incorporating such a function, the life cycle model fails to explain fully the observed dynamics in UK seasonally unadjusted data. Seasonal habit persistence effects are introduced and found to be significant. Although this generalized model stands up well to testing in a univariate context, it fails to exclude a predictive role for lagged income changes.