IMF Working Papers

Intertemporal Substitution in Consumption Revisited

By Zuliu Hu

March 1, 1993

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Format: Chicago

Zuliu Hu. Intertemporal Substitution in Consumption Revisited, (USA: International Monetary Fund, 1993) accessed November 8, 2024
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.

Subject: Consumption, Deposit rates, Econometric analysis, Estimation techniques, Financial institutions, Financial services, National accounts, Real interest rates, Treasury bills and bonds

Keywords: Consumption, Consumption growth, Cross-equation restriction, Deposit rates, Estimation techniques, GMM estimation, Real interest rates, Return equation, Treasury bill yield, Treasury bills and bonds, Utility function, WP

Publication Details

  • Pages:

    26

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1993/026

  • Stock No:

    WPIEA0261993

  • ISBN:

    9781451844306

  • ISSN:

    1018-5941

Notes

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

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