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On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility

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    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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    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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    1. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
    2. 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.
    3. Atkeson, A. & Ogaki, M., 1991. "Wealth-Varying Intertemporal Elasticities of Substitution Evidence from Panel and Aggregate Data," RCER Working Papers 303, University of Rochester - Center for Economic Research (RCER).
    4. Hanoch, Giora, 1977. "Risk Aversion and Consumer Preferences," Econometrica, Econometric Society, vol. 45(2), pages 413-26, March.
    5. 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.
    6. 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.
    7. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
    8. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
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