Making the Case for a Low Intertemporal Elasticity of Substitution
AbstractWe provide two ways to reconcile small values of the intertemporal elasticity of substitution (IES) that range between 0.35 and 0.5 with empirical evidence that the IES is large. This is done using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test. That test indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 788.
Date of creation: Oct 2011
Date of revision:
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Postal: Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501
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More information through EDIRC
Uncertainty; Intertemporal elasticity of substitution; Risk aversion; Business Cycles; Growth.;
Other versions of this item:
- R. Anton Braun & Tomoyuki Nakajima, 2012. "Making the case for a low intertemporal elasticity of substitution," Working Paper 2012-01, Federal Reserve Bank of Atlanta.
- R. Anton Braun & Tomoyuki Nakajima, 2011. "Making the case for a low intertemporal elasticity of substitution," Working Paper 2011-13, Federal Reserve Bank of Atlanta.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-01 (All new papers)
- NEP-DGE-2011-11-01 (Dynamic General Equilibrium)
- NEP-MAC-2011-11-01 (Macroeconomics)
- NEP-UPT-2011-11-01 (Utility Models & Prospect Theory)
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