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Estimating intertemporal elasticity of substitution: the case of log- linear restrictions

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  • Ching-Sheng Mao

Abstract

Are linear regression models reliable in testing whether high expected real interest rates encourage current savings and deferred consumption? Here, a Monte Carlo test shows that a linear model yields a fairly accurate estimate and small standard error, but is highly susceptible to specification bias.

Suggested Citation

  • Ching-Sheng Mao, 1989. "Estimating intertemporal elasticity of substitution: the case of log- linear restrictions," Economic Review, Federal Reserve Bank of Richmond, vol. 76(Nov), pages 3-14.
    • Handle: RePEc:fip:fedrer:y:1989:i:nov:p:3-14:n:v.76no.6
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    File URL: https://fraser.stlouisfed.org/files/docs/publications/frbrichreview/rev_frbrich198911.pdf
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    References listed on IDEAS

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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-357, April.
    3. William A. Brock & Leonard J. Mirman, 2001. "Optimal Economic Growth And Uncertainty: The Discounted Case," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 1, pages 3-37, Edward Elgar Publishing.
    4. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-1286, September.
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    Cited by:

    1. Ching-Sheng Mao, 1990. "Hypothesis testing and finite sample properties of generalized method of moments estimators: a Monte Carlo study," Working Paper 90-12, Federal Reserve Bank of Richmond.
    2. Kostiainen, Seppo & Starck, Christian, 1990. "Does government and corporate saving influence household saving in Finland?," Bank of Finland Research Discussion Papers 27/1990, Bank of Finland.

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    Keywords

    Interest rates; Consumption (Economics);

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