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IS THE ELASTICITY OF INTERTEMPORAL SUBSTITUTION CONSTANT?

Crossley, Thomas F and Low, Hamish W (2011) 'IS THE ELASTICITY OF INTERTEMPORAL SUBSTITUTION CONSTANT?' Journal of the European Economic Association, 9 (1). pp. 87-105. ISSN 1542-4766

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Abstract

In all common models of inter-temporal allocation, the assumption of a constant elasticity of intertemporal substitution (EIS) imposes surprising limitations on within-period budget allocations. Consequently, the constant EIS assumption can be tested with demand data. In fact, the EIS is pinned down completely by the shape of Engel curves: if the EIS is constant then the EIS can be estimated without variation in the interest rate. That a price elasticity can be estimated without variation in the relevant price illustrates just how strong the constant EIS assumption is. The constant EIS assumption is rejected by demand data. © 2010 by the European Economic Association.

Item Type: Article
Uncontrolled Keywords: D91; E21; D12
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 04 Sep 2013 09:30
Last Modified: 15 Jan 2022 00:52
URI: http://repository.essex.ac.uk/id/eprint/7512

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