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Limited Asset Market Participation and the Elasticity of Intertemporal Substitution

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  • Annette Vissing-Jorgensen
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    Abstract

    The paper presents empirical evidence based on the US Consumer Expenditure Survey that accounting for limited asset market participation is important for estimating the elasticity of intertemporal substitution (EIS). Differences in estimates of the EIS between assetholders and non-assetholders are large and statistically significant. This is the case whether estimating the EIS based on the Euler equation for stock index returns or the Euler equation for T-bills, in each case distinguishing between assetholders and non-assetholders as best possible. Estimates of the EIS are around 0.3-0.4 for stockholders and around 0.8-1 for bondholders, and are larger for households with larger asset holdings within these two groups.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8896.

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    Date of creation: Apr 2002
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    Publication status: published as Vissing-Jorgensen, Annette. "Limited Asset Market Participation And The Elasticity Of Intertemporal Substitution," Journal of Political Economy, 2002, v110(4,Aug), 825-853.
    Handle: RePEc:nbr:nberwo:8896

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    15. Annette Vissing-Jorgensen, 2000. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," Econometric Society World Congress 2000 Contributed Papers 1102, Econometric Society.
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