Hyperbolic Discounting and Consumer Patience During Financial Crises in Korea*

This paper tests whether consumption pattern in Korea exhibits a time-inconsistent discounting behavior using a quasi-hyperbolic Euler equation estimated by the generalized method of moments (GMM). In particular, we examine whether consumers change their discounting behavior during financial crises in 1997 and 2008. The estimation results show that Korean consumers exhibit a time-inconsistent quasi-hyperbolic discounting behavior during normal times (excluding financial crisis periods) and become more patient in making consumption decisions during financial crises, which can explain an excessive decline in consumption during financial crises. JEL Classification: D9, E2;