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On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility

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  • MASAKATSU OKUBO
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    Abstract

    In this note, we use a model with nonseparable and nonhomothetic preferences to estimate the intertemporal elasticity of substitution (IES). We show that, while the homothetic utility model may induce a bias that increases the elasticity of substitution between nondurables and durables, the estimated IES remains positive and significant. Copyright (c) 2008 The Ohio State University.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2008.00146.x
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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 40 (2008)
    Issue (Month): 5 (08)
    Pages: 1065-1072

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    Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:5:p:1065-1072

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    1. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
    2. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
    3. Masao Ogaki & Carmen M. Reinhart, 1998. "Measuring Intertemporal Substitution: The Role of Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1078-1098, October.
    4. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    5. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
    6. Blundell, Richard & Browning, Martin & Meghir, Costas, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 57-80, January.
    7. Martin Browning & Thomas F. Crossley, 2000. "Luxuries Are Easier to Postpone: A Proof," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1022-1026, October.
    8. Hanoch, Giora, 1977. "Risk Aversion and Consumer Preferences," Econometrica, Econometric Society, vol. 45(2), pages 413-26, March.
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    Cited by:
    1. Daniel Leigh, 2009. "Monetary Policy and the Lost Decade," IMF Working Papers 09/232, International Monetary Fund.
    2. Flamini, Alessandro & Fracasso, Andrea, 2011. "Household's preferences and monetary policy inertia," Economics Letters, Elsevier, vol. 111(1), pages 64-67, April.

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