... for limited asset market participation is crucial for obtaining reasonable values of the elasticity
of intertemporal substitution, it is too early to precisely determine the extent to which it helps
resolve ... substitution cross-sectionally, using a time series of cross-sections of C ...

... THE elasticity of intertemporal substitution (EIS) in consumption is a parameter of central
importance in macroeconomics ... rates to the current level of aggregate demand in the intertemporal
IS relation ... implications for the relative mag- nitudes of income and substitution effects in ...

... income and substitution effects on labor supply cancel, so that a permanent increase in the real ...
across time, (B) empirical estimates of the elasticity of intertemporal substitution have repeatedly ...
averaged rational expectations error et + θet-i. C is consumption, r is the real interest ...

... 1996] INTERTEMPORAL ELASTICITY OF SUBSTITUTION ... Consequently, any mis-measurement
of the actual cost of housing could greatly impair any evidence of short-run intertemporal
substitution, and therefore ? ... Consumption Instruments Lags 0 (se) A (se) IES (se) OID test ...

... to 1, reflecting the view that a high degree of intertemporal substitution is more ... In an influential
paper Hall (1988) has argued that consumption growth is ... of heterogeneity: limited participation
in the stock market and heterogeneity in the elasticity of intertemporal substitution. ...

... investments. Using the after-tax rate of return to capital, Mulligan estimates a
very large elasticity of intertemporal substitution of over 2. ... on both consumption
and interest rates and bias the estimates in this context. 2 ...

... In estimating the intertemporal elasticity of substitution, Hall finds that, when one takes account
of time ... As Hall (1988) points out, intertemporal substitution by consumers is a central element
of ... We assume that the constant elasticity of substitution (CES) utility function represents ...

... It also means that forward-looking consumers do not adjust their consump- tion growth in response
to interest rates, so their intertemporal elasticity of substitution in consumption must be close to
zero. Hall (1988) also argues that the elasticity of substitution of permanent ...

... 1) the quantity (1 -y) is both the reciprocal of the elasticity of intertemporal substitution (EIS) and ...
In other words, the individual has the CES utility function, with elasticity of substitution ... Singleton's
(1983) maximum-likelihood estimate of y is a measure of intertemporal preferences. ...

... In the cases where the estimate of the elasticity of intertemporal substitution is significant, the ...
are reported in table 8. The estimate of intertemporal substitution in consumption is ... from Keynesian
equations with estimates of the intertemporal elasticity of substitution in consumption ...

... first covariance is with consumption growth divided by the intertemporal elasticity of substitution;
this gets a ... coeffi- cient of relative risk aversion 7. The elasticity of intertemporal substitution с does ...
iid returns there is no interesting role for intertemporal substitution in consumption. ...

... of consumption, implying that wealthier families find it easier to substitute consumption across
periods ... Finally, note that the value of the elasticity of intertemporal substitution can vary with family ...
financial instrument that has the same lending and borrowing nominal interest rate «t ...

... estimates of key behavioral parameters (including the elasticity ofintertempora] substitution) and
no rejections of theoretical restrictions. ... where ê is individual consumption, r is the real interest
rate, a is the elasticity of intertemporal substitution and q is a residual uncorrelated ...

... Our results permit direct estimation of the elasticity of intertemporal substitution in consumption
and its ... of values as Constantinides (1990), and calculate the intertem- poral elasticity of substitution. ...
of y, a, and b, we then calculate the intertemporal elasticity of substitution and its ...

... Hence, the estimator of the intertemporal elasticity of substitution which is based only on the growth
rate ... We assume that the Constant Elasticity of Substitution (CES) utility function represents
intra-temporal ... good, P 2 (t), is equated with the marginal rate of substitution based on ...

... In equation (2) the parameter cr denotes the intertemporal elasticity of substitution. ... the developing
countries, and Hall (1988) for the United States-the inter- temporal elasticity of substitution ... of our
finding of a statistically significant de- gree of intertemporal substitution relates to ...

... when the coefficient of relative risk aversion and the elasticity of intertemporal substitution are
not ... 1992, Alternative specifications for consumption and the estimation of the intertemporal
elasticity of substitution. ... Epstein, LG and SE Zin, 1989, Substitution, risk aversion, and the ...

... similarmethods can lead to a downward bias in estimates of the intertemporal elasticity of
substitution(IES ... equation, even ifestimated on leisure, is not related to the intertemporal
labor-supply ... 22Other studies using the PSID to estimate the labor-supply elasticity include ...

... the fall in the liquidity constraints due to deregulation (8) and the intertemporal elasticity of
substitution (o-) were ... The in- tertemporal elasticity of consumption with respect to real interest
rates is ... "Intertemporal Substitution in Consumption," Jour- nal of Political Economy 96 (Apr. ...

... The magnitude of the intertemporal elasticity of substitution ranges from 0.2357 to 0.4144 with
the average ... 1988) found low and insignifi cant estimates for the elasticity of intertemporal
substitution for nondurable ... 0.3869 r,+1 + ,+1. (0.1227) Note that the elasticity measure rises ...

... with (17) is shown, in Appendix B.2 D, to be: Et[Rijt+i RMJ+1 } = £<{Д,<+1 ñM,í+i'? } (18) As
equation (18) shows, with a unit elasticity of intertemporal substitution and conditionally ... The
marginal rate of substitution between current and future consumption reduces to [see ...

... y(Ct, Ht)'vL(Lt) (1 — a)(C,Ht)v(L) II) = W• (0.8) Equation (0.6) is the intertemporal efficiency
condition relating the marginal ... consumption aggregate y; (denotes the elasticity of substitution
between market consumption and consumption of goods produced at home; ...

... Preferences over aggregate consumption take the standard form (1) View the MathML source where
View the MathML source and σ is the intertemporal elasticity of substitution. For low values of σ,
agents are unwilling to substitute aggregate consumption over time. ...

... preference parameters, the constant intertemporal elasticity of substitution σ. ... tells us less about
intertemporal substitution when the risk free return is driven by “taste” shocks. ... occurs because
taste changes have opposing wealth and substitution effects on consumption growth. ...

... problems associated with aggregate savings equations, estimates the elasticity of intertemporal
substitution in (private ... seriously to bias downward the estimates of the intertemporal elasticity
of substi ... where the use of IDA resources is common), intertemporal substitution is weak ...

... Given our concavity assumption the intertemporal elasticity should be negative for all values
of Ct. ... cycle" variables may make it difficult to pick up high frequency intertemporal substitution
effects. ... the real interest rate jumps, becoming positive and higher than consumption growth ...

... They imply that the elasticity of intertemporal substitution for this category of goods cannot be
ade- quately determined ... It is a controversy whether the intertemporal elasticity of substitution
is large enough to make changes in expected rates of return ... Intertemporal substitution 203 ...

... all, the first order conditions one uses to characterize the inter-temporal allocation of ... possible
and this means that changes in consumption due to intertemporal substitution and variation ... Notice
that to be able to estimate the elasticity of intertemporal substitution with a log- linear ...

... The difference in the estimates for the intertemporal elasticity of substitution and the coefficient
of relative risk aversion for the three groups of farm households in this ... Campbell, JY "Intertemporal
Asset Pricing Without Consumption Data." Amer. ... "Elasticities of Substitution in Real ...

... substitution, and ρ as the rate of time preference. ... cycle? Consumption Euler equations may help
produce an estimate of the supply elasticity of capital ... 21(2), July 1983: 129-58. Hall, Robert E.
“Intertemporal Substitution in Consumption.” Journal of Political Economy. 96(2), ...

... Euler equation (3) under the assumption of CRRA (or iso-elastic) preferences to ... exhibit Constant
Relative Risk Aversion, and maintaining the assumption of inter-temporal separability, the ... If
intertemporal prices were the same across individuals and the utility function depended ...

... covariance is with consumption growth divided by the intertemporal elasticity of substitution; this
gets ... The simplest approach is to assume that the elasticity of intertemporal substitution a = 1 ...
encountered numerical difficulties in estimating the restricted intertemporal aaaet pricing ...

... of terms-of-trade shocks, a country may wish to smooth consumption intertemporally in ... a small
open economy, an adverse terms-of-trade shock has substitution effects ... for the United States
is very similar to the assumed intertemporal elasticity of substitution between importables ...

... constraints do not bind, it is still possible to analyse intertemporal substitution effects using ... price
elasticities have been also computed, as well as the intertemporal elasticity of substitution and
a ... In this case, we cannot reject the null hypothesis of intertemporal separability: the ...

... on an asset return, leads to much more stable, small, sensible estimates of the intertemporal
elasticity of substitution. ... Neely, Roy, and Whiteman: Risk Aversion Versus Intertemporal
Substitution ... return than it is an equation for determining an asset return from consumption growth ...

... Pt Pt 1 (ãÀ1)(1Àa) 4 5 X (3) In this condition ã 1aó is the intertemporal elasticity of substitution. ...
Our tests consider a range of values for the intertemporal elasticity, but we focus attention on
the case in which we estimate the elasticity in the context of our model. ...

... We allow for cross- country variation in both the intratemporal elasticity of substitution between
traded and nontraded goods and the intertemporal elasticity of substitution. ... an infinitely-lived
representative household whose objective is to choose a consumption stream that ...

... i,t+1 is the real after-tax rate of interest, ρ −1 the intertemporal elasticity of substitution, δ the ... a
linearized Euler equation can bias the coefficient of the intertemporal rate of substitution. ... once
the assumption of certainty equivalence is dropped by the theory of intertemporal choices ...

... he faced a higher interest rate. The consumer will substitute away from current consumption
because it is, in effect, more expensive. A1tFX)ugh an ... 18 Page 21. consideration of the entire
intertemporal planning problem of the consumer and does not decompose in a simple way. ...

... In a full, general equilibrium model, Jermann (1998) shows that introducing an elastic supply
of capital can reduce interest rate variability, but would ... Assuming that habit is external greatly
simplifies the representative agent's intertemporal marginal rate of substitution. ...

... appropriate functional form for the underlying utility function, the parameter σ can then be
interpreted as the intertemporal elasticity of substitution. ... equation (1) assumes that the 1-quarter
interest rate affects the economy by inducing intertemporal substitution in consumption. ...

... a significant degree of substitution between government and private consumption is sensitive
to ... 1/ can be interpreted as estimates of the intertemporal elasticities of substitution. ... concluding,
it is worthwhile to compare the intertemporal elasticity of substitution estimates ob- tained ...

... In Section IV the Euler equations for interest-bearing assets and money are estimated jointly. ...
Substitute from (2) into equation (1') to obtain ... In subsection AI examine whether or not, apart from
the influence of the real rate of interest, consumption follows a random walk. ...

... of the problem: First we ask, do we really know the value of the intertemporal substitution? ... (1)
where ∆C is the change in log consumption between two consecutive periods, Rf is the ... rate, η
is the time preference rate, and ρ is the elasticity of intertemporal substitution parameter. ...

... formed at date 0, 10 β is the discount factor, σ is the intertemporal elasticity of substitution, and
j ... structure of the economy, since it is derived only from a simple intertemporal optimization problem ...
of the unconstrained agents, and θ, which is related to the price elasticity of housing ...

... Then the marginal rates of substitution of goods in period t are independent of consumption
patterns in earlier ... Habits are a par ticular kind of breach of this intertemporal separability and
have been in widespread use since FARRELL [1952] to justify dynamic effects in demand ...

... In that case, t is the subjective discount factor; p is a parameter that reflects inter- temporal
substitution, in that 1/(1-p) is the elasticity of intertemporal substitution of broadly defined ... The
estimated values of the intertemporal elasticity of substitution range from 0.39 to 0.83 . ...

... on the Euler equation for rational optimizing consumers which suggest a near-zero elasticity
of intertemporal substitution in con ... reporting estimates of the proportion of con- sumption
constrained by liquidity constraints, the elasticity of intertemporal substituion, substitution ...

... separable utility a risk-aversion parameter 8 > 1 is equivalent o an elasticity of intertemporal
substitution below one ... In case of low intertemporal substitution (8 > 1), consumers respond to
a high price of money ... in Example 2). Since 0 < g( ) < 1 for 0 < (X < 1, the elasticity in (18) is ...

... are given in table 2. Besides the estimates of the elasticity of intertemporal substitution 1 a ... is 0.88
and 1.05 respectively, points to a higher degree of intertemporal substitution in the ... for direct
comparison, it is of interest to estimate the intertemporal elasticity of substitution from the ...

... 3. Estimates of the Intertemporal Elasticity of Substitution using Aggregate US Data ... the actual
cost of housing could greatly impair any evidence of short run intertemporal substitution, and
therefore ... the one hand, if the failure of the standard Euler equations for consumption is due ...

... the intertemporal elasticity of substitution, the smaller the consumption growth rate for a given
interest rate. ... for the relevant income bracket were used as instrumental variables, ie the growth
rate of consumption in the ... The intertemporal elasticity of substitution has a positive value ...

... Economics 38 (1996) 50534 527 5. Measuring intertemporal elasticities of substitution In this ...
precise measurement of any individual's intertemporal elasticity of substitution of consumption
expen diture ... l, 2, 71, and 72, the ratio of the intertemporal elasticity of substitution for any ...

... aversion does not equal the re- ciprocal of its intertemporal elasticity of substitution, then models ...
This implies that, even if an allowance for intertemporal substitution is appropriate [ie ... First, I
estimate A directly from the consumption Euler equation for the representative permanent ...

... Consider the intertemporal elasticity of substitution (IES). ... We estimate, quite precisely,
intertemporal elasticity parameter values that are on the higher end of those ... on the size of change
in consumption can help us to identify the taste for intertemporal substitution. ...

... directly on the magnitude of the intertemporal elasticity of substitution (σ > 0). If the real interest ...
is constant or the intertemporal substitution elasticity is zero, then equation (6) shows that ... the
underlying consumption model applies to variables measured at points in time, whereas ...

... eg, Pratt (1964)] or as the inverse of the intertemporal elasticity of substitution [eg, Hall ... Eichenbaum,
M. and L. Hansen, 1985, Estimating models with intertemporal substitution using aggregate time ...
Flavin, M., 1984, Excess sensitivity of consumption to current income: Liquidity ...

... coefficient on RRt-1 could be interpreted as the inverse of the intertemporal elasticity of substitution. ...
Boone et al (2001), who impose long-run unit elasticity between consumption ... is consistent with
an effect of financial liberalisation on intertemporal substitution, which emerges ...

... is Epstein and Zin's (1991) recursive function, which allows for the separation of the elasticity
of intertemporal substitution (EIS) from ... Define the intertemporal marginal rate of substitution (IMRS)
as. ... Ogaki and Reinhart (1998, Table 2) estimate a higher elasticity of ρ= 1.167 with a ...

... Taking the natural logarithm of (7) and using equation (2) to substitute for j yields: ... assumed a
constant real interest rate, but the relationship between the real interest rate and consumption
growth should be closely related to the intertemporal elasticity of substitution. 17 ...

... Indeed, Blundell, Browning, and Meghir (1992) estimate the intertemporal elasticity of substitution
for consumption ... The parameter p, influences the elasticity of intertemporal substitution. ... extensive
evidence on the size of the intertemporal substitution elasticity for consumption ...

... in my working paper (Summers 1982) values of the intertemporal elasticity of substitution which
cluster ... time preference, a reveals risk aversion, while a is the elasticity of intertemporal substitution. ...
Since both risk aversion and intertemporal substitution parameters play a role in ...

... Given that the estimated elasticity of intertemporal substitution is often used as a basis for ...
parameters that enter both the lntra-tetnporal and inter-temporal allocation decisions ... We
concentrate attention on the intertemporal substitution elasticity; that is, the percentage change ...

... REFERENCES Hall, RE (1988) Intertemporal substitution in consumption, Journal of Political
Economy, 96, 339–57. Hamori, S. (1996) Consumption growth and the intertemporal elasticity
of substitution: some evidence from income quintile groups in Japan, Applied ...

... motive, the degree of prudence and risk aversion, and the willingness of consumers to substitute
consumption over time. ... We start with a standard intertemporal optimization problem, in which
a finite-lived consumer with isoelastic ... or, in the specific case of isoelastic-elastic utility: ...

... for expected consumption growth allows the estimation of the intertemporal elasticity of substitution
and provides ... Such a relation is determined by the elasticity of intertemporal substitution. ... function
delivers a precise estimate of the coefficient of intertemporal substitution and a ...

... liquidity constraints there should be a negative correlation between the marginal rate of
substitution and A1+w1 or any variable that reduces the ... This a- is called the elasticity of
intertemporal substitution. ... Since the consumption innovation e2 and E2 is uncorrelated with ...

... function which separates the coefficient of relative risk aversion from the intertemporal elasticity
of substitution. ... function which is an isoelastic function of a constant elasticity of substitution ...
consumption (11) The isoelastic-distributed lag version of intertemporal non-separability in ...

... Zin (1989) preferences, which allow for a separation between the intertemporal elasticity of
substitution (IES) and ... is determined by the magnitudes of the risk aversion and the elasticity of
substitution. ... ψ, is greater than 1. In this case the intertemporal substitution effect dominates ...

... extended by estimating the parameter related to the elasticity of intertemporal substitution that
was ... The intertemporal marginal rate of substitution for a representative consumer with ... two output
elasticities and of the coefficient related to the intertemporal elasticity of substitution. ...

... where ct is consumption at time t, ht is the hours of work ... Given that the theory of inter- temporal
substitution requires a positive figure for the ... TABLE 1.—ESTIMATED INTERTEMPORAL
ELASTICITY OF SUBSTITUTION OF LABOR SUPPLY 1967–1976 BALANCED SAMPLE (N ...

... as column (3) in table 1, ie the base period reference elasticity of intertemporal substitution is
.68 ... to look outside simple current period models and acknowledge the intertemporal factors that ...
The main reason why households do not substitute expenditures over time may well not ...

... These results agree with Hall (1988), who finds that the intertemporal elasticity of substitution
is low using data for the United ... with labor supply and hence that the correlation of income and
consumption is due to substitution between leisure and consumption, would be ...

... of utility, 1 la may be interpreted as the longrun intertemporal elasticity of substitution (IES) for ...
these IES estimates (including our own) imply that the income elasticity for domestic ... a significant
and positive IES for import consumption suggests that intertemporal substitution is an ...

... 16 There are also non-stochastic Euler equations. This paper does not examine those
equations. ... Q U(C) = >Uq(Cj) (12) q 1 Uq(Cfl q=1,...,Q (13) In (13), 'lq is the intertemporal
elasticity of substitution in consumption of the qth consumption service. ...

... approximations to the true effects, even with rational expectations and in the absence of
consumption insurance ... Constantinides (1990) shows that there is a gap between the relative
risk aversion and the intertemporal elasticity of substitution. ... INTERTEMPORAL SUBSTITUTION ...

... the assumption of a constant real interest rate or a zero intertemporal elasticity of substitution,
measured con ... lagged instrument set are reported in Table 4. The intertemporal elasticity of
substition ... Nevertheless, the intertemporal elas- ticity of substitution, s, is found insigni®cantly ...

... Third, (1) assumes separability between consumption and leisure. ... micro data have abundant
information on consumers, the time period is rarely long enough to allow sufficient variations
in the interest rate for an accurate estimate of the intertemporal elasticity of substitution. ...

... the wife and the educational level appear to alter the intertemporal elasticity of substitution of
the ... where σ is the elasticity of intertemporal substitution, r is the real interest rate (r and ... of a second
earner does not change the household's attitude towards intertemporal substitution. ...

... of substitution ranges from 2.208 to 2.537. ... 4.2 The Intertemporal Elasticity of Substitution ... 12 The
following GMM results appear robust to other combinations of instrumental variables that include
the growth rate of C2t in place of the real consumption ratio. 12 Page 15. ...

... the `Euler equa- tion approach' that exploits the implications of inter- temporal optimization and
allows one to estimate the coe cient of intertemporal substitution in consumption. ... of interest in
Equation 3 are u , which controls the intertemporal elasticity of substitution in con ...

... where p = ba, and ff = -u'lc*u", the elasticity of intertemporal substitution, is assumed to be a
constant ... expands, it starts offering more and more services (like school lunches) that substitute
for, rath- er than services (like national defense) that complement private consumption. ...

... of relative risk aversion 7 and not the elasticity of intertempo- ral substitution ф ... 3.6.2 Unit Elasticity
of Intertemporal Substitution When ф is equal to one, we have shown above that the ... Since data
on consumption are available only from 1890, we use the sample 1890-1993 in our ...

... Comparing the estimates of X with those reported in the literature is of some interest. ... obtained
by Hayashi (1985b) on the basis of the Japanese Survey of Family Consumption (0.15 ... not rejected,
with the exception of the UK Overall, the results of the Euler equations indicate that ...

... t+1 where σ=1/β, which may be interpreted as the intertemporal elasticity of substitution, and
μ ... we assume a constant interest rate, and hence the absence of intertemporal substitution, Eq ...
consider the growth rates of consumption and income, the logs of consumption and income ...

... In- deed, the intertemporal elasticity of substitution in consumption is defined as the response
of consumption growth to interest rates. Since the interest rate in this model is A - ., equation
(10) implies that the infinite-horizon intertem- poral elasticity of substitution in this model ...

... to break the usual equation ς = 1/ρ where ς is the elasticity of intertemporal substitution and ρ ...
given the basic properties ς > 0 and ρ > 0, a positive wealth elasticity of risk ... in each period, where
the fraction depends on the degree of impatience and intertemporal substitution (1/ρ). ...

... It can also be shown that measures the elasticity of inter- temporal substitution. ... Based on equation
(5), we will follow Campbell (1993) to substitute consumption out of the pricing ... model with changing
variances.7 One of them is to set the elasticity of intertemporal substitution ¼ 1 ...

... Third, capital tax incidence is one of the reasons why it is important to have a good estimate of
the aggregate intertemporal elasticity of substitution (IES), and using the capital tax data can
help us directly answer the ... 1991-95 1996- Page 16. Capital, Interest, and Substitution - 13 ...

... We further assume that the felicity function u is of the Constant Relative Risk Aversion (CRRA)
form, with intertemporal elasticity of substitution 1/, and multiplicatively separable in Z: ... Consumption
increases (respectively decreases) over time when the interest rate is larger ...

... to be highly accu$ rate for reasonable values of the intertemporal elasticity of substitution, provided
that ... coeffi cients of 5, 10, and 15, and elasticities of intertemporal substitution of 0.5 ... of stock prices
in relation to dividends, if the elasticity of intertemporal substitution is greater ...

... in productivity raises the real wage sufficiently, that there is a substitution away from ... β(1+r)] σ
C t *, where σ=−U′C*/{C*U (C*)} is the intertemporal elasticity of substitution. ... that the robustness
of the relationship between government spending and private consumption will be ...

... Second, this equation also allows us to estimate the inter-temporal elasticity of substitution
simultaneously; that is, 1 ... testable implications for (7), (a) If 1/α > ν/α, then C t and G t are
Edgeworth-Pareto complements, under which, the intertemporal elasticity of substitution is larger ...

... none of the parameters can be straightforwardly interpreted as describing the intertemporal
elasticity of substitution in labor ... the wage (R s K t ) times the marginal utility of consumption, which
is ... As the wage increases over the life cycle, the substitution effect induces labor supply ...

... Key words: Intertemporal substitution on consumption, permanent income, bor- rowing constraints ...
of relative risk aversion (ie, the inverse of the elasticity of intertemporal substitution). ... to accurately
estimate the parameter associated to the intertemporal elasticity of substitution. ...

... analysis in the context of LCPIM to estimate the intertemporal elasticity of substitution (IES) for ...
denoted MRS hereafter) or intertemporal marginal rate of substitution (denoted IMRS ... variables,
the log-linearized cross-Euler equation specifies the intertemporal optimality condition ...

... presence of precautionary saving 473 Table 1 Estimates of the elasticity of intertemporal
substitution, 1 A ... Mankiw, NG, 1985, Consumer durables and the real interest rate, Review of ... Zeldes,
S., 1989, Consumption and liquidity constraints: An empirical investigation, Journal of ...

... t t c c& and the output/capital ratio t t k y are given, the elasticity of intertemporal
substitution ρ can be estimated ... estimated without information on interest rates or returns
on assets. It implies that an ... consumption is │ ⌋ ⌉ │ ⌊ θn k A ψχρ c c ...

... coefficient of risk aversion, θ = 1−γ 1− 1 ψ , and ψ is the elasticity of intertemporal substitution
(IES). ... (4) where mt+1 is the log of the intertemporal marginal rate of substitution (IMRS), and
rj,t+1 ... is larger than one, the substitution effect dominates the wealth effect. ...

... 3 is the discount factor; and Rt is the gross after-tax real interest rate between ... wheret+ l-ln(ct+
1) - Et[ln(ct+ )] and a is the intertemporal elasticity of substitution.6 If expectations ... equation (3)
is serially correlated within households due to time aver- aging of consumption over three ...

... where ct = log Ct , s = 1/a represents the intertemporal elas- ticity of substitution and is ... Tables
3(a) and 3(b) present the regression results for non-durable consumption, where r is taken to
be the bank interest rate (rbt) in Table 3(a) and the private interest rate (rpt) in Table 3 ...

... This is likely to increase the elasticity of base money demand, implying that the infla- tionary
consequences of a ... For domestic residents, the Euler equation for optimal intertemporal con-
sumption plans is ... and the equality of the expected marginal rates of substitution becomes ...

... rates and the growth rate of consumption provides information on the intertemporal elasticity
of substitution. ... other things being equal, on the real interest rate elasticity of consumption. ... the
findings here with the estimates of the degree of intertemporal substitution provided in ...

... residuals and endogeneity bias arising from innovations in the relative price to innovations in
consumption. ... These parameter estimates imply that the value of the intratemporal elasticity of
substitution, , is 0.46 ... GMM estimation: the intertemporal elasticity of substitution parameter. ...

... interest is consistently too high, about 4%, as opposed to the observed 1% in US data. ... The
individual household's marginal rate of substitution is calculated by raising the individual
household's consumption growth to a power equal to the negative of the RRA coefficient. ...

... equation is ln ci,t 1 ln ci,t (r ), where is the intertem- poral rate of substitution. ... where is the elasticity
of intertemporal substitution, ˜i,t 1 is an expectational error, and ˜ i,t 1 is the ... 4 For instance, if the
interest rate is constant and consumption growth is normally distributed, this term ...

... Therefore, the estimating equa- tions involve ratios of forcing variables (except the real interest
rate which is in levels ... This model has four free parameters: the fraction of current-income
consumption (u ), the intertemporal elasticity of substitution (IES) in consumption (s ), the ...

... i,t), AB = (δL+1, δL+2, . . ., δK)/, and σ denotes the (constant) intertemporal elasticity of substitution. ...
substitution due to variations in preferences (AlnCδ t+1); intertemporal substitution in response
to ... ment in average consumption, which we call misspecification and denote AlnCθ ...

... to the subjective rate of time preference, or an intertemporal elasticity of substitution of zero ... and
the real interest rate, representing the pure substitution effect discussed ... plausible assumptions
they show that the estimate of the elasticity of intertemporal substitution is downward ...

... p5) represents the true price index for group s. For example, in the intertemporal allocation
problem ... of the level of y8, guaranteeing a unitary income or expenditure elasticity (O ln ... least
because the second order price derivatives give the constant utility 'Slutsky' substitution effects ...

... ôU'(Ck,t+i)IU'(Ct) is the intertemporal marginal rate of substitution of the ... but breaks the tight link
between the coefficient of relative risk aversion and the elasticity of intertemporal substitution. ...
returns when consumption is low, that is, when the marginal utility of consumption is high ...

... Lucas and Rapping (1969) suggested that a large intertemporal substitution in labor supply could
potentially ... to obtain Frisch (or l-constant) demand functions; in this context, consumption and
hours of ... The parameter h is the intertemporal elasticity of substitution for labor supply. ...

... (a) Lifetime consumption behaviour The interpretation of e as the reciprocal of the intertemporal
elasticity of substitution in consumption ... are imposed on the utility function – does not apply in
this intertemporal context. ... Furthermore, if utility functions are typically iso-elastic, then ...

... A more realistic utility function would exhibit a constant elasticity of intertem- poral substitution. ...
The agent has preferences characterised by a constant elasticity of intertemporal substitution
equal to 1 ... likely to affect the estimate of because of measurement error in consumption. ...

... 1 0) + 0 o" = y, while the elasticity of 3 When the elasticity of intertemporal substitution, or, equals
1 ... Journal of Empirical Finance 3 (1996) 267301 271 intertemporal substitution, o, is the ratio of
one ... by the coefficient on the consumption factor, 0 o. If reliable consumption data exist ...

... time discount rate, and uses the observed growth rate to estimate the intertemporal elasticity
of substitution. ... 233-45; and Gerald Carlino, "Interest Rate Effects and Intertemporal Con- sumption ...
after-tax real interest rate made inferences about the interest elasticity of consumption ...

... period for households at points along different paths that are consistent with inter- temporal
reallocation of ... Period by period needs outweigh intertemporal substitution. ... 3) in table 8.1, which
is to say using a base-period reference elasticity of intertemporal substitution of-0.68. ...

... In this case the elasticity of intertemporal substitution is not constant. 5 See, for instance,
Hall (1988). ... The problem becomes even more serious if the elasticity of substitution is
not constant but a function of various demographic variables. ...

... function 1/α and 1/ν are interpreted as, respectively, the intertemporal elasticity of substitution
for private ... The estimate ν/α is defined as the intratemporal substitution of elasticity between private ...
α and ν are 0.942 and 0.811, respectively, implying that intertemporal elasticities of ...

... between periods t and t + 1. In this framework, the elasticity of intertemporal substitution (eis)
is ... we propose an alternative approach to estimating the parameters of intertemporal allocation. ...
Assuming exponential discounting and an iso-elastic felicity function, this gives the Euler ...

... substitution (IMRS) with respect to each good are equalized and therefore perfectly ... is held by
a small fraction of the population with a high elasticity of intertemporal substitution. Attanasio
and Weber (1989) documents an intertemporal elasticity of substitution in excess of one in ...

... that, even for relatively small deviations from unit elasticity of substitution between labour ... one
gets using aggregate consumption data to estimate the elasticity of intertemporal substitution
is less ... in this table were obtained using the arithmetic mean as aggregate consumption. ...

... present estimates of individual value of public consumption and the inter temporal substitution
elasticity by means of ... the aggregate consumption bundle, and l or is the elasticity of intertemporal
substitution in aggregate ... "The Intertemporal Elasticity of Substitution in Consumption ...

... Many empirical studies still have an interest in the appropriate value of IES (see, for example,
Oshio and Kobayashi (2009)). ... (1996): “Consumption Growth and the Intertemporal Elasticity of
Substitution: Some Evidence from Income Quintile Groups in Japan,” Applied ...

... This effect operates in addition to any direct intertemporal substitution motive (as determined ... in
the household, whereas one additional child increases consumption growth by ... The intertemporal
elasticity of substitution σ appears relatively small, taking a value between 0.06 and ...

... Thus, in the context of the intertemporal optimizing model developed here, it is possible that once
the current spread and the private real interest rate are included in the model of ... 12. I/( 1 -a) can
be interpreted as a structural inter- temporal elasticity of substitution, since I - a is ...

... The estimated elasticity of substitution is large. ... problem is separable, and can be decomposed
into an atemporal portfolio problem and inter- temporal consumption smoothing. ... expected changes
to the cost of transactions as well as the usual intertemporal substitution effects. ...

... The point estimates of the parameter γ fall in a slightly larger range of [0.693, 0.706] and imply
that estimates of the intertemporal elasticity of substitution fall in the ... is determined by the relative
magnitude of the intertemporal and intraperiod elasticities of substitution. ...

... consumption model implies that any real return Rt+1 multiplied by an intertemporal marginal
rate ... equations place inequality restrictions on the mean and variance of the marginal rate of
substitution. ... l and M2, t+l are functions of lagged and future consumption expenditures and ...

... Empirically, liquidity constraints are found to be important, and the estimated intertemporal
elasticity of substitution parameter is much larger ... If this group of consumers has a constant elasticity
substitution utility function with an IES a, and ... Aggregate consumption behaviour 1145 ...

... restriction fol- lows in the special case of constant real rates of interest and non ... consumers are
liquidity constrained, changes in taxes or transfers will alter the intertemporal be- havior ... equation
re- strictions on the system of equations gen- erating changes in consumption and in ...

... dimensional objects, the parameter s (the intertemporal elas- ticity of substitution) is set ... and Miles
Kimball, “Long-Run Labor Supply and the Elasticity of Intertemporal Substitution for Consumption ...
is converted to real values by dividing by the personal consumption expen- diture ...

... (1). where σ is the intertemporal elasticity of substitution, C is consumption, and ρ is the subjective
rate of ... product of own capital; these may also influence the rates of intertemporal substitution
and/or ... of the model in Section 2. The time preference rate and elasticity of substitution ...

... a consequence of the lags with which monetary policy normally operates, interest rate rules ...
problem is different on the relevant variables the optimalspecification of the Euler equation for
estimation is ... therefore it is not instrumented, then a much lower value estimate of monetary ...

... As shown by Browning [8] in a multi-goods model, the intertemporal elasticity of substitution is
defined as ... the full set of parameters, I need also the within-period marginal rate of substitution. ...
of using the durable goods as a collateral make the intertemporal allocation condition ...

... Clearly, this future retirement income acts as a substitute for risk-free asset holdings and induces ...
In this section we solve for the optimal portfolio and consumption rules for some of ... Parameters
of interest are the variance of the temporary and permanent shocks to labor income ...

... These findings also indicate that the intertemporal elasticity of substitution is very close to
zero.11 The random ... in all other goods will be correlated with the expected changes in consumption
of non ... it can be shown that under the assumption of a constant real interest rate the ...

... factor, a > 0 is the constant measure of relative risk aversion, and p > 0 is the inverse of the
elasticity of intertemporal substitution. ... If a = p, then equation (10) collapses to the standard
expected utility specification with constant elasticity of substitution (CES) preferences. ...

... Intrapersonal games involve much greater analytic complexity than analogous nonstrategic
intertemporal maximization, and this ... because they think that future selves will act in the interest
of the ... economic life begins at twenty and do not model consumption decisions before this ...

... nondurable and durable goods into a model with homotheticity of preferences yields a more
plausible estimate of the intertemporal elasticity of substitution (IES) in ... That is, the elasticity of
substitution ε accounts for the role of durable goods in intertemporal substitution in that ...

... In this formulation, the own-wage intertemporal elasticity of substitution (IES) for females, for
example ... Although not significant, the positive own-wage elasticity estimates in large- as well ... may
be primarily responsible for the rejection of the intertemporal substitution hypothesis for ...

... non-standard case where the link is broken between the elasticity of substitution and individuals ...
where p is the intertemporal elasticity and where the preference parameter <Pt will be allowed ...
the increasing variance of income and the increasing variance of consumption in the ...

... of income and consump- tion, Hall's (1988) estimate of the intertemporal elasticity of substitution
using (1.4 ... a group of individuals who pool their resources to make joint consumption decisions
or ... to measure housing con- sumption instead of the principle, interest, insurance, and ...

... consumption and import demand, and Atkeson and Ogaki (1996) with the intertemporal elasticity
of substitution. ... Estimates of the long-run elasticity of substitution between consumption and money ...
The intertemporal optimization problem here differs in several ways from earlier ...

... Section 6 examines the implications for the relative risk aversion and intertemporal elasticity of
substitution. Section 7 concludes. 2 Theoretical Framework ... substitute in the identity for observed
consumption in terms of true consumption and measurement error as stated above. ...

... which measures the intertemporal elasticity of substitution in con- sumption. ... Interest rates employed
in this study are obtained from various sources and generally for different financial ... Page 5. The
'rule of thumb' consumption model Table 1. Cross-country evidence, Ac, = p + IAy, ...

... Interest usually centres on the inverse of this parameter, the elasticity of intertemporal substitution
(EIS ): ... Low values of the EIS indicate an aversion to fluctuating consumption streams.1 For the
iso0elastic case with exponential discounting the only other preference parameter ...

... effects from financial liberalisation can account for a large part of observed changes in the
intertemporal consumption pattern of ... presence of a constant real interest rate. ... for the sample period
1952-89, ie, we quite deliberately exclude observations from the consumption bust of ...

... B. Euler Equations for an Elasticity of Intertemporal Substitution ≠ 1. ... H g t is the number of
households in group g in quarter t. We then substitute the average ... on a constant term and the
covariances of log excess returns on the portfolios and discounted consumption growth over ...

... 730 JY Ciimphrll timl NG Mankiw, The response of consumption to income intertemporal elasticity
of substitution. ... in table 2. In every country except Japan, the forecasts of consumption growth
and ... well-defined linear relationship.21 Table 3 adds the short-term real interest rate to ...

... mines both risk aversion and the elasticity of intertemporal substitution (EIS ... When the utility function
is generalized to depend on two goods, we can still characterize the household's willingness
to substitute one of the goods (for example, nondurable consumption)across time ...

... their marginal rate of substitution. The equilibrium in a heterogeneous-household, full- ... with equity
returns. Habit persistence lowers the intertemporal elasticity of substitution in ... Therefore, given
the risk aversion, habit persistence lowers the elasticity and raises the ...

... savings function approach and then address the issue of intertemporal substitution in consumption ...
The standard saving function employed in the studies of interest elasticity in the ... external savings
decreases domestic savings and that there is a substitution relationship between ...

... (1989) found positive but small in magnitude intertemporal elasticity of substitution. Campbell ...
for housing in the household portfolio is important for the household's intertemporal ... assume a
simple constant elasticity of substitution (CES) model of consumer behavior thus ...

... interest rate for good i (between periods t-1 and t). The intertemporal substitution elasticity for
good i ... one good ('consumption') then this is the conventional definition for the elasticity of
intertemporal substitution (the numerator is the change in consumption growth and ...

... Furthermore, estimates of the intertemporal elasticity of substitution based on the estimated welfare
functions are plausible and of a similar order of ... and to analyze the sensitivity of saving and
consumption to the interest rate (ie, the intertemporal rate of substitution). ...

... substitution , the coefficient that governs the value of the model-derived volatility is unambiguously
the inverse of the elasticity of intertemporal substitution. To the extent that, unlike in the case of
risk aversion, a high aversion to intertemporal substitution of consumption is not ...

... Zin preferences, which allows us to separate risk aversion from the elasticity of intertemporal
substitution (EIS). ... Once we have solved for the policy functions, we can substitute those in the ...
Once we have these distributions, the unconditional mean consumption for age t can then ...

... real rate of interest, ao 0, a1 = a = the elasticity of intertemporal substitution, v, = ct Et 1 ... Mankiw,
NG, JJ Rotemberg and LH Summers, 1985, Intertemporal substitution in macroeconomics,
Quarterly ... Muellbauer, J., 1983, Surprises in the consumption function, Economic Journal 93 ...

... For this specification, our estimate of risk aversion is the inverse of the elasticity of intertemporal
substitution. We estimate the preference parameters γ, along with the trading cost ψ and ... the
sensitivity of consumption growth to interest rate movements. This motivates our study ...

... (1986) and Hotz, Kydland and Sedlacek (1988) for tests of intertemporal substitution in labor ...
estimate structural parameters such as the elasticity of intertemporal substitution or the extent
of ... Importantly we also allow the budget elasticity to shift with observable household ...

... In contrast, including consumer confidence has significant implications for intertemporal
substitution: adding consumer confidence substantially decreases estimates of the intertemporal
elasticity of ... where 1/σ is the intertemporal elasticity of substitution in consumption, a key ...

... 9Fehr and Götte (2007) estimate an intertemporal elasticity of substitution of about 1.1 by using
a unique data ... Bc is the elasticity of intertemporal substitution of consumption (EIS consumption ...
intertemporal elasticity (response to anticipated and to unanticipated changes in wages ...

... at S = 0+, so any discontinuity detected in the outcome of interest (consumption) may signal ... that
the standard Euler equation, in which consumption growth is a function of intertemporal prices
and ... However, in Blau's model the causal effect of retirement on consumption is zero. ...

... Zin and Weil Euler equation which is derived from the inter-temporal optimization problem ... is that
it allows for the separation between the elasticity of intertemporal substitution and risk ... next goal
is to derive the value of σ, the intertemporal elasticity of substitution in consumption. ...

... σ > 0 is a (biased under nonhomoth- eticity) measure of the elasticity of intertemporal substitution
(EIS ... not negligible, and thus affects the estimates of both the intratemporal and intertemporal
substitu- tions. ... on the homothetic case η = 1, in which the true elasticity of intratemporal ...

... is larger than that observed for caloric intake, reflecting substitution towards lower ... CSFII—both
reveal a statistically significant decline in food consumption over the ... of the intertemporal elasticity
of demand for calories, sometimes called the elasticity of intertemporal substitution. ...

... the risk premium, the time preference, and the elasticity of intertemporal substitution in
consumption. ... expenditure are positively correlated with shocks to private consumption, but
uncorrelated ... however, has no effect on time preference and intertemporal substitution, whereas ...

... and sign, of the consumption change can pin down the elasticity of intertemporal substitution. ...
α, the change in consumption at retirement identifies the intertemporal elasticity of substitution
parameter γ. ... at retirement grows larger as the taste for intertemporal smoothing increases ...

... Euler equations and the intertemporal budget constraint around the exact solution that applies
if the inter- temporal elasticity of substitution ... The elasticity of intertemporal substitution matters
because changing expected returns have opposing income and substitution effects ...

... of consumption growth to interest rate changes depends on the value of σ, the intertemporal
elasticity of substitution. ... σ, modest rises in the interest rate may generate a positive substitution
effect large ... An empirical study of the 'rule of thumb' consumption model in five East Asian ...

... and McDermott (1998), the intertemporal and intratemporal elasticities of substitution affects the
extent of the HLME. On one hand, the intertemporal elasticity of substitution σ measures ... return.
Larger values of this coefficient imply larger reactions to movements in intertemporal ...

... The empirical results suggest significant intertemporal substitution in the labor supply of females
although no ... of wealth of household i in period t, ßk is the inter- temporal substitution elasticity
of labor ... context of the seasonal model considered here, ßk is the elasticity relevant for ...

... Marginal Rate of Substitution (IMRS), mt+1, is mt+1 = θ log δ − θ ψ ∆ct+1 + (θ − 1)rc,t+1, (5) 4
Page 6. ... As the elasticity of intertemporal substitution decreases to 0.5, the ... e,j ≡ Cov(ea t+1,ua
r,j,t+1) Var(ea t+1) , while the exposure of asset returns to transient risks in consumption is ...

... Y;) + e,, (3) where r, is a real interest rate and в is the elasticity of intertemporal substitution. ...
spending and consumer attitudes toward risk, time preference, and intertemporal substitution:
an econometric ... Consumption and capital market imperfections: an international comparison ...

... intertemporal budget constraint implicitly assumes a certain market structure and the ... recursive
substitution, one gets that log consumption is given by the sum of innovations from ... cross sectional
data or longitudinal data, one can follow the evolution of consumption inequality for ...

... then quite naturally ρ = 1 − ϕ, with the elasticity of intertemporal substitution σ = 1 1-p . ... this
specification offers potentially a natural disentangling between risk aversion and intertemporal
substitution. ... according to the habit formation approach, the reference consumption level St ...

... model is the intertemporal elasticity of substitution and not the coefficient of relative risk
aversion. ... An implication of a large class of intertemporal asset pricing models is ... t. The
parameter -y governs intertenporal substitution of consumption, with ...

... The results suggest that the inter- temporal elasticity is statistically different from zero, but ... a more
noticeable change in significance levels for the intertemporal elasticity of substitution for
consumption ... 'Intertemporal Substitution in Consumption', Journal of Political Economy, Vol. ...

... t consumption of good I; r is the inverse of the elasticity of inter-temporal substitution. ... would hold
under the assumption that y = 1, so that the intertemporal elasticity of substitution equals one. ...
g and a follow random walks {ip = 1) or the elasticity of intertemporal substitution (1/7 ...

... spent investing in human capital does not permit micro-empirical studies on intertemporal
substitution of the ... MathML source View the MathML source where c t is the consumption at time
t ... to year t-1), β is the parameter for the intertemporal elasticity of substitution (henceforth, IES ...

... at t- 1, 3 is a subjective discount factor, C is the intertemporal elasticity of substitution, and R ... of
the assumptions that capital markets are integrated and that rates of intertemporal substitution
are equal ... income that is used to control for the effect of domestic income on consumption. ...

... operator conditional on the information available at time t, σ>0 is the intertemporal elasticity of
substitution (IES), and u(t ... of a durable good in period t, and ɛ>0 is the elasticity of substitution ...
first-order condition that the user cost equals the marginal rate of substitution between the ...

... Although there is clearly some room for such substitution, its scope seems limited. ... Model (3)
uses consumption dated concurrently with the survey year. ... [29] The estimated intertemporal
elasticity of substitution is 0.88 and is marginally statistically significant. ...

... and labor supply: (1 - a) -1 and (,/ - 1)-1 represent the elasticity of intertemporal substitution in
consumption and ... term, 6 is the rate of technical progress, o- is the substitution rate between ... are
inadequate for our purpose because we must use a quarterly consumption data series ...

... We assume that the Constant Elasticity of Substitution (CES) utility function represents ...
Mankiw (1985) estimated the IES for consumption of durable goods. Our ... intertemporal
elasticity of substitution of durable good consumption is ...

... Hall, RE, 1988, Intertemporal substitution in consumption, Journal of Political Economy 96 ... PM
and C. Stuart, 1992, Does the elasticity of intertemporal substitution differ across ... Mao, C., 1989,
Estimating intertemporal elasticity of substitution: The case of loglinear restrictions ...

... In this model, it is also the intertemporal marginal rate of substitution. 2 The pioneering article
on multiperiod asset pricing along these lines was written by Lucas (1978). ... 3 It is well known that
the inverse of α is the elasticity of intertemporal substitution. ... of consumption data. ...

... that the elasticity of intertemporal substitution IES for the total consumption expenditures is
economically negligible. ... They estimate both intratemporal and intertemporal equations ... same
preference specification but estimating the elasticity of substitution using cointegrating ...

... the intratemporal elasticity of substitution dominates over the intertemporal elasticity of substitution
and then ... test the effectiveness of fiscal expansion, the intratemporal elasticity of substitution ... the
previous subsection, the long-run elasticities of substitution between government ...

... function model; namely, one characterized by a zero elasticity of substitution across consumption
and real ... Notice from equation 3 that (1 Q) is the elasticity of intertemporal substitution, ie, it
measures the responsiveness of the percentage change in consumption to changes in ...

... future consumption up to the point where the marginal rate of substitution equals the ... levels of
(expected) real interest rates rt+ 1, a larger elasticity of intertemporal substitution cq (or ... that the
only legitimate role of lagged information variables in explaining future consumption is in ...

... of substitution (k * $), so F! " must be nonlinear (F)) "* $ ... Inter$temporal expansion paths (and
Engel curves for periods or states) are linear but not through the origin. ... For example, Attanasio
and Weber (1995) estimate the elasticity of intertemporal substitution to ...

... real interest rate variations, with a constant of propor- tionality equal to 1/A, the elasticity of
intertemporal substi- tution. ... 1983), Hall (1988), and Campbell and Mankiw (1989, 1990 and 1991),
a consistent estimate of the elasticity of intertem- poral substitution can be ...

... intertemporal substitution of consumption is very low. Following a positive technology ...
consumption from a utility function and inter-temporal budget constraint that directly ... expected
real interest rate, and represents the intertemporal elasticity of substitution. For ...

... The slope coefficient in the regressions that link valuation ratios to consumption volatility is ... carlo
based, finite sample empirical distribution for the various parameters and test statistics of interest. ...
present value restriction is that (2) View the MathML source This equation says that ...

... Fitting the life expectancy and health spending data to our health technology, equation
(11), we find ... implies, for example, that consumption will not depend on health status), and
that quality of life is a constant elasticity function of health status. ...

... The real test of the model lies in the Euler equation for luxury goods, which evaluates the ... Second,
we estimate the elasticity of intertemporal substitution with our luxury data. ... Fourth, we test whether
our preferred measure of luxury consumption explains the cross-section of stock ...

... (primarily, the elasticity of intertemporal substitution, and, in some instances, the rate ... approach
is its inability to address questions such as how consumption reacts to unexpected changes in
income ... Thus, the Euler equation allows estimation of intertemporal substitution effects, ...

... Equa- tion (1) is the structural equation, and ‚ is the scalar parameter of interest. ... where ƒ is the
coeffi cient of relative risk aversion (here also the inverse of the elasticity of intertemporal
substitution), ãctC1 is the growth rate of consumption, rtC1 is the log gross return on some ...

... It will be possible, for instance, to assess the size of the elasticity of intertemporal substitution -
that is to ... estimates of our structural parameters to evaluate the compensated and uncompensated
wage elasticity of male ... rationalised within an intertemporal optimisation framework. ...

... The first property is risk aversion and intertemporal substitution in consumption. With additively
separable preferences across states and time periods, the coefficient of relative risk aversion
(CRRA) and the intertemporal elasticity of substitution are reciprocals of one another. ...

... on the inverse of this parameter, the elasticity of intertem% poral substitution (EIS ): ... to estimate
the intertemporal price elasticity (the EIS) without some intertemporal varia% tion ... of parameters
and different income processes within the time separable iso%elastic utility framework. ...

... interest rate and have the same utility function—in particular, they have the same intertemporal
elasticity of substitution and discount ... discount rates differ across provinces then so will the constant
terms (a). Similarly, if intertemporal elasticities of substitution vary then ...

... such an effect, log utility (ρ=1) implies that income and substitution effects cancel ... in the IRA
programme on consumption is ambiguous and depends on the elasticity of intertemporal
substitution. ... In summary, while the results of both the consumption and asset tests for the 1982 ...

... The expansion also facilitates the estimation of the elasticity of intertemporal substitution. ... Note
that this elasticity denotes intertemporal substitution, and that the larger this elasticity, the more
effective will monetary ... where θ = λσ and σ is the intertemporal elasticity of substitution. ...

... Hence, the estimator of the intertemporal elasticity of substitution which is based only on the growth
rate of ... nondurable and durable goods. We assume that the Constant Elasticity of Substitution ...
nondurable good, P2(t), is equated with the marginal rate of substitution based on ...

... others who estimate the IES (Intertemporal elasticity of substitution in consumption). Second, ... Result
1: the real marginal rate of substitution (aka stochastic discount factor) is, to a ... Note that a similar
argument can be made for the intertemporal elasticity of labor supply. ...

... Epstein, Larry, and Stanley Zin (1989). “Substitution, Risk Aversion, and the Temporal Behavior
of Consumption and Asset Returns: A Theoretical Framework,” Econometrica, 57, 937-969. ...
“Mismeasurement of the Elasticity of Intertemporal Substitution The Role of ...

... Hall (1988) estimated intertemporal elasticity of substitution with a log-linear model but
rejected the Hansen-Singleton one-period lagged instruments. ... relative risk aversion and
elasticity of substitution among other advantages. They chose four ...

... evidence from macroeconomic data about the magnitude of the intertemporal elasticity of
substitution (IES) is ... they allow us to make a meaningful distinction between intertemporal
substitution and risk ... maintained hypothesis of a large IES the response of consumption to interest ...

... ticity of Substitution to analyze the degree of heterogeneity in these coefficients. I find that ... 81
APPENDIX D. INTERTEMPORAL ELASTICITY OF SUBSTITUTION 85 ... measured with error
(ie, assumed to be classical). The consumption Euler equation belongs ...

... The coefficient on the expected return is the elasticity of intertemporal substitution (EIS). ... growth
of longer horizons will more accurately measure intertemporal substitution. First, ... a more accurate
measure of how people substitute consumption over time. In addition to ...

... However, an elasticity of intertermporal substitution equal to one implies ... A substantial empirical
literature including Hall (1988) and Campbell (2003) estimates the elasticity of intertemporal
substitution to be low and sometimes negative in the following regression ...

... Intertemporal Elasticity of Substitution (EISt,h) is defined as follows: ... Such a substitution does not
seem very intuitive and requires comparison with the definition given in ... use that fact to illustrate
the main message of the paper - it is Elasticity of Intertemporal Substitution which is ...

... long-run labour supply.3 A low value of the elasticity of intertemporal substitution means that ... labour
supply elasticity indicating the size of the income and substitution effects ... equal to the inverse
of the downpayment times the intertemporal elasticity of substitution, s. Consumption ...

... Among many issues that are related to inter-temporal substitution, one of the most ... intertemporal
elasticity of substitution and φ is a constant. This equation captures the ... consumption level
at age 60, after we control for household observables ia X which ...

... substitution improves the fit of an otherwise standard calibrated macro model. The fi% ... tertemporal
substitution generate the predictions that the degree of forward%lookingness ... the elasticity of
intertemporal substitution. Furthermore, it suggests that monetary policy ...

... estimate of the elasticity of intertemporal substitution is in the conventional range and significantly
different from the ... Keywords: incomplete consumption insurance, intertemporal substitution, limited
asset ... rate of per capita consumption is consistent with the low short-term real ...

... risk aversion concerns the willingness of an investor to move consumption between states ... an
alternative specification for preference which can disentangle risk aversion from intertemporal
substitution. ... 1 − ρ)/(1 − 1/ψ) where ψ is the elasticity of intertemporal substitution, ρ and β ...

... The appropriate estimation of Eq.(7) would allow us to obtain a consistent estimate of the
intratemporal elasticity of substitution between private and government consumption, 1=®. Further-
more, we can estimate the intertemporal elasticity of substitution, 1=°, and ...

... In particular, using the constant elasticity of substitution (CES) utility function, I estimate the
intertemporal elasticity of substitution (IES), a parameter measuring the response of household's
consumption growth to a change in a rate of return, and relative risk aversion (CRRA). ...

... Page 3. intertemporal substitution (EIS), which is the reciprocal of the coefficient of ... as an elasticity
puzzle (Guvenen, 2002). ... Nonetheless, the second equality in (3) states that for intertemporal
optimization the expected consumption is formed according to the riskless-rate. Page 9. ...

... The magnitude of this effect will be determined by (1/oi) , the intertemporal elasticity of substitution. ...
mentioned, evidence with respect to the role of interest rates on the intertemporal allocation of ...
to (t-1) . A high value of the coefficient indicates that the elasticity of substitution is ...

... panel data on both home and market hours, as well as market consumption, and this ... in Rupert,
Rogerson and Wright (1995) to estimate the elasticity of substitution between cmt ... The intertemporal
elasticity of substitution is given by a2, while a^ tells us how hours move over time ...

... to discriminate between two implies which might be of interest to empirical ... The estimated elasticity
of intertemporal substitution, σ, is small but insignificant, and estimates for ... Weber, EC, 2000,
“'Rule-of Thumb' consumption, intertemporal substitution, and risk aversion”, Journal ...

... 2 Page 3. 1 Introduction Until recently, little was known about differences in intertemporal
substitution and risk aversion ... ity in these parameters, using microdata, is to start with models that
imply constant intertemporal elasticity of substitution (IES) or relative risk aversion (RRA). ...

... factor, σ is the intertemporal elasticity of substitution (IES), and γ denotes the coefficient of 3 Page
6. ... The mean and standard deviation of the log real interest 10 Page 13. rate and consumption
growth slightly differ from those of Campbell (2003) and the correlation is lower. ...

... A low value of the elasticity of intertemporal substitution means that the marginal utility of consump ...
supply elasticity indicating the size of the income and substitution effects ... is equal to the inverse
of the downpayment times the intertemporal elasticity of substitution s. Consumption ...

... highly significant with the theoretically expected sign, indicating that the elasticity of substitution
ranges from ... 4.2 The Intertemporal Elasticity of Substitution Let us now turn to GMM estimation
of a. In the second ... include the growth rate of C21 in place of the real consumption ratio. ...

... actual estimates of the elasticity of the intertemporal substitution and relative prudence. ... A large
and growing empirical literature investigates the sensitivity of consumption (or, equivalently, saving)
to interest rates (the elasticity of intertemporal substitution) and to uncertainty ...

... Furthermore, estimates of the intertemporal elasticity of substitution based on the estimated
welfare functions are plausible and of a similar order of magnitude as other estimates found
in the literature. ... rate (ie, the intertemporal rate of substitution). ...

... The commodity-specific intertemporal elasticity of substitution and the intertemporal own-price
elasticity for a ... signs of αi and,γii because wit >0. Since all of the estimated parameters for γi in
Table 1 are positive, the commodity-specific intertemporal elasticities of ...

... UD t F t ,( ) u D t F t ,( ) [ ] ln= 1 γ⁄ 1= Page 5. 5 ; and (4) and ; (5) For this utility function, represents
the intratemporal elasticity of substitution between domestic and foreign goods consumption,
and represents the intertemporal elasticity of substitution of the composite good. ...

... 1982, 1983), or is it that its reciprocal, the intertemporal elasticity of substitution, is small ... a group
of agents who all have large, while different, elasticities of intertemporal substitution. ... we have
two groups of agents with the same elasticity of intertemporal substitution ψ, denoted by ...

... 2.1. The elasticity of intertemporal substitution is now larger (0.59), but very
poorly deter- mined. ... 45. Hall, RE (1988)'Intertemporal Substitution in
Consumption', Journal of Poli- tical Economy, 96: 339-57. Hansen ...

... substitution (AES, hereafter for convenience) and the intertemporal elasticity of substitution ...
approach. The average elasticity of import demand with respect to a permanent increase in real ...
or future import consumption (intertemporal substitution). In fact, if the parameters of habit ...

... Page 8. • The elasticity of intertemporal substitution (EIS) is ... the substitution effect, while if ψ is
greater than one, then the substitution effect dominates ... Solving out for expected consumption
growth allows the estimation of the intertemporal elasticity of substitution and provides an ...

... where * > 0 is the relative risk aversion and 1/* is the intertemporal elasticity of substitution, the
Euler Equation (10) becomes ... aversion parameter. In fact, in some cases the author obtains an
elasticity of intertemporal substitution not significant. Besides, Hall (1988) discussed the ...

... expectations operator, and ϑ = the reciprocal of the intertemporal elasticity of substitution. Foreign
variables are denoted by a star. ... rates of substitution of consumption between countries help
predicting current dif- ferences by running the following regression: EI , (1') ∑ ...

... based asset pricing model with CRRA un- tility functions (hence the elasticity of intertemporal
substitution (EIS) of ... of persons who are actively adjusting their marginal rates of substitution of
consumption ... expecting the market return to be high, will defer their consumption to later ...

... (3) ( ) θ θ − = − 1 1 t t c cU , where 1/θ is the intertemporal elasticity of substitution. ... (5) So if
there is no substitution, then β=r, as with a conventional financial annuity with infinite life.
Page 8. 11 ... Comparing this with an econometrically estimated elasticity ...

... As is well-known, the elasticity of intertemporal substitution in consumption is the inverse of ... Thus,
we infer from (3.14) that reducing intertemporal substitution has a very different ... Consumption
growth at different levels of time aggregation have different autocorrelation patterns ...

... economies, all parameters aside from the discount factor and the intertemporal elasticity of
substitution were found ... imply that consumers implement identical consumption plans, we can
substitute for the ... also real interest rate effects and the impact of the consumption taste shock ...

... u(C) = C 1−1/σ /(1 − 1/σ), where σ is the elasticity of intertemporal substitution. ... coefficient (σ −
1)c + 1 on the second term captures the intertemporal substitution effect, the ... representative
consumer changes the current account–net output ratio to smooth consumption in response ...

... Cavalcanti, C. (1993), 'Inter-temporal substitution in consumption: an empirical investigation for ...
Vaidyanathan, G. (1993), 'Consumption, liquidity constraints and economic development ... Yogo,
M. (2004), 'Estimating the elasticity of intertemporal substitution when instruments are ...

... that shadow price involves a consideration of the entire inter- temporal planning problem ... case,
Selden's results show that it is unambiguously the elasticity of intertemporal substitution and not ...
source of a down- ward bias in estimates of the intertemporal elasticity of substitution. ...

... is the relative risk aversion (RRA) coefficient and also the inverse of the intertemporal elasticity
of substitution. ... and use instruments that are distinct from lagged real returns and consumption
growth but ... are lagged nominal stock return, lagged nominal short term interest rate, the ...

... From the derivation shown in the last section, σ is actually the elasticity of intertemporal
substitution, which captures the substitution effect of changes in the interest rate on
consumption over time. It is difficult to separate the substitution effect from ...

... conditional expectations of consumption and of the asset return. One can substitute out the ...
equation of state consumption: AlogCi,t+1 = ci + λ1 log(1 + ri b,t+1) (10) +λ2 ⎡ ⎣ n Σ p=1,p/ei ... for
the elasticity of intertemporal substitution, EIS, and ηi,t+1 is the regression error term. ...

... and not significantly different from zero. Life%cycle theory predicts that the intertemporal elasticity
of substitution, captured here by the wage coeffi cient, must be positive. Thus ... while the APE
remains relatively flat. In addition, the wage elasticity is found to be ...

... If this consumer has a CES utility function with an intertemporal elasticity of substitution a and
a pure rate of time pref ... Variables are converted to real values with the aggregate defla- tor for
nondurable consumption. Every variable but the interest rate is in logs and per capita. ...

... They suggest an elegant axiomatisation that allows disentangling the intertemporal substitution
from the risk aversion factor. Within ... constant elasticity of intertemporal substitution equal to 1/α. ...
is compensated by the remuneration for postponing consumption, ie the interest rate. ...

... ity of substitution: estimates of 1=¾ are essentially unchanged under the CAPIH in both size and
significance level. ... Finally, estimates of the intertemporal elasticity of substitution generally fall
into the same 0.13-0.15 range observed under the CAPIH. 6 Summary and Conclusion ...

... It is also increasing in the expected return on wealth for retired investors whose elasticity of
intertemporal substitution (1/7) is smaller than the wealth elasticity of consumption. ... Page 15. return
on financial wealth dominates the substitution effect and they choose to consume the ...

... The intertemporal elasticity of substitution measures consumers' willingness to substitute
consumption between different points in time. ... As before the constraints define an intertemporal
budget constraint, but this time it has to ... By repeated substitutions, the RHS can be written as ...

... constraints do not bind, it is still possible to analyse intertemporal substitution effects using ... This
yields evidence of correlation of consumption over four consecutive quarters. ... price elasticities
have been also computed, as well as the intertemporal elasticity of substitution and a ...

... There- fore, distinguishing between intertemporal substitution and risk aversion does not affect
the ... Moreover, the intertemporal elasticity of substitution does not enter the formula for the costs ...
calibrated β, so when he lowered the elasticity of intertemporal substitution by raising θ ...

... Varying the intertem- poral elasticity of substitution several variants of the 'market ... in the case of
CD intertemporal preferences with unitary intertemporal elasticity of substitution all the ... With CD
intertemporal preferences explicit solutions for the consumption behaviour can be ...

... Even if expected excess returns on risky assets over safe assets are constant, time0variation
in real interest rates is ... is the special case of power utility in which both the coefficient of relative
risk aversion and the elasticity of intertemporal substitution in consumption equal one. ...

... problems with aggregate-savings equations, estimates the elasticity of intertemporal substitution
in (private ... where the use of IDA resources is common), intertemporal substitution is weak ... restricted
model, the former parameter controls the inter- temporal elasticity of substitution ...

... to liquidity constrained consumers and the intertemporal elasticity of substitution in consumption. ...
consumption constrained by liquidity constraints, the elasticity of intertemporal substitution,
substitution between private ... The responsiveness of consumption growth to the expected ...

... preference parameters, the constant intertemporal elasticity of substitution σ. ... creates a substitution
effect lowering capital accumulation. ... expected return of capital over other assets is just a function
of consumption behavior, as summarized by the consumption Euler equation. ...

... productivity. The increase in productivity raises the real wage sufficiently that there is a substitution
away from leisure and into consumption. ... where is the intertemporal elasticity of substitution.
Equation (8) implies the following econometric relationship: ... along intertemporal lines. ...

... Un- til recently, little was known about changes in risk aversion and intertemporal substitution
across ... intertemporal elasticity of substitution, and Section 8 concludes. ... plicated by the problem
of measurement errors in consumption, which, if ignored, will likely result ...