Intertemporal Substitution in Consumption

40 Pages Posted: 18 Aug 2004 Last revised: 22 Dec 2022

See all articles by Robert E. Hall

Robert E. Hall

Hoover Institution and Department of Economics, Stanford University; National Bureau of Economic Research (NBER)

Date Written: July 1981

Abstract

Does a higher real interest rate induce significant postponement of consumption? According to the theory developed here, this question can be answered by studying the relation between the rate of growth of consumption and expected real interest rates. In postwar data for the United States, expected real returns have declined over time in the stock market and for savings accounts. Over the same period, the rate of growth of consumption has been almost steady. The paper concludes that intertemporal substitution is weak, for if it were strong, the growth rate of consumption would have declined.

Suggested Citation

Hall, Robert E., Intertemporal Substitution in Consumption (July 1981). NBER Working Paper No. w0720, Available at SSRN: https://ssrn.com/abstract=349113

Robert E. Hall (Contact Author)

Hoover Institution and Department of Economics, Stanford University ( email )

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