The 1997 economic crisis had substantially changed the behavior of households. More than ever, the consumption which the households chose became more volatile. In the economic downturn consumption expenditure grew less than the income so that consumption expenditure fluctuated more than the income. And recently, consumption has been leading the output in the business cycle. In the 7th circle of the business cycle, consumption lead the output by one quarter. Business Survey Index has been lagging Consumer Survey Index, which means that households predicted the business cycle more accurately that entrepreneurs. Since the 1997 economic crisis, the consumption expenditure became more sensitive to the income fluctuation.

The paper investigates the characteristics of consumption behavior since the 1997 economic crisis. First, it estimates the long-run equilibrium level of consumption corresponding to the income level. According to the estimated cointegrating relation between consumption and income, the current level of consumption expenditure is close to the long-run equilibrium level. Second, it estimates the consumption function, and compares the two periods- from 1990:1Q to 1997:3Q vs from 1997:4Q to 2001:3Q. In the later period, consumption responds more sensitively to interest and inflation. In addition, the wealth effect from the stock and real estate enhances after the crisis. Third, it tests whether the liquidity constraint became less binding in the consumption problem facing the households. It is found that the ease of the liquidity constraint helped household smooth consumption expenditure over the periods.