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Real Interest and Consumption

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  • Robert E. Hall

Abstract

One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed study of data for the twentieth-century United States shows no strong evidence that the elasticity of intertemporal substitution is positive. Earlier studies flnding substantially positive elasticities are shown to suffer from a bias related to the timing of instrumental variables.

Suggested Citation

  • Robert E. Hall, 1985. "Real Interest and Consumption," NBER Working Papers 1694, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1694
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    1. Barro, Robert J & Sahasakul, Chaipat, 1986. "Average Marginal Tax Rates from Social Security and the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 59(4), pages 555-566, October.
    2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    3. Barro, Robert J & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 56(4), pages 419-452, October.
    4. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rates from Social Security and the Individual Income Tax," University of Chicago - George G. Stigler Center for Study of Economy and State 29, Chicago - Center for Study of Economy and State.
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    Cited by:

    1. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
    2. Skinner, Jonathan, 1988. "The welfare cost of uncertain tax policy," Journal of Public Economics, Elsevier, vol. 37(2), pages 129-145, November.
    3. Martin Feldstein, 1995. "The Effect of a Consumption Tax on the Rate of Interest," NBER Working Papers 5397, National Bureau of Economic Research, Inc.
    4. Hausman, Jerry A & Poterba, James M, 1987. "Household Behavior and the Tax Reform Act of 1986," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 101-119, Summer.
    5. Lawrence H. Goulder & Barry Eichengreen, 1992. "Trade Liberalization in General Equilibrium: Intertemporal and Inter-industry Effects," Canadian Journal of Economics, Canadian Economics Association, vol. 25(2), pages 253-280, May.
    6. Moresi, Serge, 1999. "Uncertain lifetime, risk aversion and intertemporal substitution," Economics Letters, Elsevier, vol. 62(2), pages 207-212, February.
    7. Barsky, Robert B, 1989. "Why Don't the Prices of Stocks and Bonds Move Together?," American Economic Review, American Economic Association, vol. 79(5), pages 1132-1145, December.
    8. Lawrence H. Goulder, 1989. "Tax Policy, Housing Prices, and Housing Investment," NBER Working Papers 2814, National Bureau of Economic Research, Inc.
    9. repec:eee:jetheo:v:175:y:2018:i:c:p:265-290 is not listed on IDEAS
    10. Yoshiko Kuwahara & Yasushi Ohkusa, 1996. "An alternative estimation method for the OCE model," Applied Economics Letters, Taylor & Francis Journals, vol. 3(8), pages 501-503.

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