Capital, Interest, and Aggregate Intertemporal Substitution

49 Pages Posted: 7 Dec 2002 Last revised: 30 Oct 2010

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Date Written: December 2002


Financial economics research has suggested that expected returns are not the same across assets, and that their movements over time are not simply described or explained. I argue that this suggestion has implications for the study of substitution over time --namely that 'the' interest rate in aggregate theory is not the promised yield on a Treasury Bill or Bond, but should be measured as the expected return on a representative piece of capital. Furthermore, tax policy changes can be used to distinguish intertemporal preferences (a.k.a., the supply of savings) from the demand for capital, and to distinguish Fisherian from non-Fisherian interpretations of consumption-interest rate comovements. I so measure the interest rate using U.S. national accounts data, and find consumption growth to be both interest elastic and forecastable with tax and interest rate variables. In other words, standard proxies for 'the intertemporal marginal rate of substitution' and for 'the marginal product of capital' move together, once we allow for taxes, even though both fail to be significantly correlated with any particular financial asset's return

Suggested Citation

Mulligan, Casey B., Capital, Interest, and Aggregate Intertemporal Substitution (December 2002). NBER Working Paper No. w9373, Available at SSRN:

Casey B. Mulligan (Contact Author)

University of Chicago ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-9017 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics