Intertemporal Substitution in Consumption: A Literature Review

59 Pages Posted: 17 Dec 2015

See all articles by Julian Thimme

Julian Thimme

Karlsruhe Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2015

Abstract

This paper reviews the status quo of the empirical literature about the elasticity of intertemporal substitution (EIS) in consumption. Aiming to answer the question what the true magnitude of the parameter really is, it discusses several recent advances of the theory and highlights challenges for the estimation. Although the general discussion still seems to be prevailed by Hall's early EIS estimates close to zero, we show that several deviations from the time-additive constant relative risk aversion model speak in favor of considerably higher values. Our treatment is supposed to provide researchers a hint at which parameter is a reasonable and incontrovertible choice for the calibration of models in macroeconomics and finance.

Keywords: Consumption, intertemporal substitution, literature review

JEL Classification: D91, E32, E44, G12

Suggested Citation

Thimme, Julian, Intertemporal Substitution in Consumption: A Literature Review (October 5, 2015). Available at SSRN: https://ssrn.com/abstract=2704067 or http://dx.doi.org/10.2139/ssrn.2704067

Julian Thimme (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstra├če 12
Karlsruhe, Baden W├╝rttemberg 76131
Germany

HOME PAGE: http://julianthimme.de

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