Abstract

I examine 2,735 estimates of the elasticity of intertemporal substitution in consumption (EIS) reported in 169 published studies. The literature shows strong selective reporting: researchers discard negative and insignificant estimates too often, which pulls the mean estimate up by about 0.5. The reporting bias dwarfs the effects of methods, with the exception of the choice between micro and macro data. When I correct the mean for the bias, for macro estimates I get zero, even though the reported t-statistics are on average two. The corrected mean of micro estimates of the EIS for asset holders is around 0.3-0.4. Calibrations greater than 0.8 are inconsistent with the bulk of the empirical evidence.

Negative estimates of the elasticity are underreported ...

Funnel plot

... and so are marginally insignificant estimates.

Histogram of t-statistics

Reference: Tomas Havranek (2015), "Measuring Intertemporal Substitution: The Importance of Method Choices and Selective Reporting." Journal of the European Economic Association 13(6), 1180-1204.

Read the paper

Headline result

Elasticity of intertemporal substitution in consumption: corrected for publication bias, 0.3-0.4 (micro estimates for asset holders; macro mean zero), based on 2,735 estimates from 169 published studies (Havranek 2015, Journal of the European Economic Association).

How to cite

Tomas Havranek (2015), "Measuring Intertemporal Substitution: The Importance of Method Choices and Selective Reporting." Journal of the European Economic Association 13(6), 1180-1204.

BibTeX 
@article{havranek2015eis,
  author  = {Tomas Havranek},
  title   = {Measuring Intertemporal Substitution: The Importance of Method Choices and Selective Reporting},
  journal = {Journal of the European Economic Association},
  year    = {2015},
  doi     = {10.1111/jeea.12133},
}

Where this has been used

David Card’s graduate labor economics course at Berkeley reads the paper in its lecture on intertemporal labor supply, and reproduces its funnel plot: Lecture 5 of Economics 250A. The companion paper on why the elasticity varies across countries is cited for a plausible average value in Sargent and Stachurski’s Dynamic Programming and in the American Economic Review.

Michael Kremer, Gautam Rao, and Frank Schilbach cite this paper in Behavioral development economics, Handbook of Behavioral Economics, and David Card, Jochen Kluve, and Andrea Weber cite it in What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations, Journal of the European Economic Association.

Tomohiro Hirano and Joseph Stiglitz cite this paper in Overlapping generations models, multiplicity of steady states and momentary equilibria, and economic fluctuations, Oxford Review of Economic Policy.