Cross-Country Heterogeneity in Intertemporal Substitution
41 Pages Posted: 15 Sep 2013
Date Written: August 12, 2013
We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in developing countries and countries with low stock market participation substitute a smaller fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of poor households or households not participating in asset markets also find systematically smaller values of the elasticity.
Keywords: elasticity of intertemporal substitution, consumption, meta-analysis, Bayesian model averaging
JEL Classification: C83, D91, E21
Suggested Citation: Suggested Citation
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By Neil Rankin