Subjective Intertemporal Substitution

Richard Crump, Stefano Eusepi, Andrea Tambalotti and Giorgio Topa

No 734, Staff Reports from Federal Reserve Bank of New York

Abstract: We estimate the elasticity of intertemporal substitution (EIS)—the response of expected consumption growth to changes in the real interest rate—using subjective expectations data from the New York Fed’s Survey of Consumer Expectations (SCE). This unique data set allows us to estimate the consumption Euler equation with no auxiliary assumptions on the properties of expectations, which are instead necessary when using choice data. We find a subjective EIS of about 0.5, consistent with the results of much of the literature. In addition, planned consumption displays excess sensitivity to expected income changes, even among households not facing substantial liquidity constraints.

Keywords: inflation expectations; elasticity of intertemporal substitution; Euler equation; subjective expectations (search for similar items in EconPapers)
JEL-codes: D12 D15 D84 E21 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2015-07-01
New Economics Papers: this item is included in nep-mac and nep-upt
Note: Revised August 2021.
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Citations: View citations in EconPapers (28)

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Journal Article: Subjective intertemporal substitution (2022)
Working Paper: Subjective Intertemporal Substitution (2016)
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