Intertemporal Substitution in Consumption Revisited

Author/Editor:

Zuliu Hu

Publication Date:

March 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 93/26

Subject:

Notes:

Study based on data from individual G-7 and a panel of twenty OECD countries.

English

Publication Date:

March 1, 1993

ISBN/ISSN:

9781451844306/1018-5941

Stock No:

WPIEA0261993

Format:

Paper

Pages:

26

Please address any questions about this title to publications@imf.org