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Measuring the Intertemporal Elasticity of Substitution for Consumption: Some Evidence from Japan

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Author Info

  • Akihiko Noda

    ()
    (Graduate School of Business and Commerce, Keio University)

  • Shunsuke Sugiyama

    ()
    (Graduate School of Economics, Keio University)

Abstract

The purpose of this paper is to present improved estimates of the intertemporal elasticity of substitution (IES) for Japan assuming a constant relative risk aversion (CRRA) utility function. The estimates of the IES we obtain range from 0.2 to 0.5 when we use quarterly consumption data and the Continuous Updating Estimator (CUE). We find that the IES is weakly identified when we employ the two-step GMM estimator, while the CUE can identify the IES. Moreover, we also find that using consumption data of different frequencies leads to quite different estimates of the IES.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P48.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 1 ()
Pages: 524-533

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Handle: RePEc:ebl:ecbull:eb-09-00516

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Related research

Keywords: Intertemporal Elasticity of Substitution; Relative Risk Aversion; Generalized Method of Moments; Continuous Updating Estimator; Weak Identifi cation;

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  1. Yogo, Motohiro, 2008. "Asset Prices Under Habit Formation and Reference-Dependent Preferences," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 131-143, April.
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  3. Nakano, Katsura & Saito, Makoto, 1998. "Asset Pricing in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 151-166, June.
  4. Oshio, Takashi & Kobayashi, Miki, 2009. "Income inequality, area-level poverty, perceived aversion to inequality, and self-rated health in Japan," Social Science & Medicine, Elsevier, vol. 69(3), pages 317-326, August.
  5. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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Cited by:
  1. Steven Lugauer & Nelson Mark & Horag Choi, 2013. "The Size of the Precautionary Component of Household Saving: China and the U.S," 2013 Meeting Papers 1046, Society for Economic Dynamics.

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