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Intertemporal Substitution in Consumption Revisited
Author:
Zuliu Hu null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1993: Issue 026
Language:
English
Publication Date:
01 Mar 1993
DOI:
https://doi.org/10.5089/9781451844306.001
ISBN:
9781451844306
ISSN:
1018-5941
Pages:
26
Keywords:
WP; utility function; consumption growth; Treasury bill yield; return equation; cross-equation restriction; GMM estimation; Consumption; Treasury bills and bonds; Estimation techniques; Deposit rates; Real interest rates
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Some of the highly controversial questions in macroeconomics critically hinge on the value of a single parameter of consumer preference--the elasticity of intertemporal substitution. This paper provides new estimates of this parameter for individual G-7 and a panel of twenty OECD countries. We find that single equation GMM estimates are typically small and imprecise, consistent with Hall’s (1988) finding from the U.S. data. Estimation of a system of equations that takes into account the cross-equation restrictions implied by theory, however, generally gives larger and better determined values for the parameter. The panel procedure also yields relatively large estimates. Overall our multi-country results contradict the hypothesis of zero intertemporal substitution.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund