Elasticity of Intertemporal Substitution: An Investigation in Iran

Majid Einian and Masoud Nili (m.nili@sharif.edu)
Additional contact information
Masoud Nili: Graduate School of Management and Economics, Sharif University of Technology, Tehran, Iran

Journal of Money and Economy, 2016, vol. 11, issue 2, 207-223

Abstract: We present estimates of the Elasticity of Intertemporal Substitution (EIS) for Iranian households using synthetic cohort panels based on household micro-data. Results show significant difference with the common values used in Dynamic Stochastic General Equilibrium (DSGE) models which are originally based on estimated values for developed countries. We show that this difference has important theoretical and practical implications. In a simple Real Business Cycle (RBC) setting using the estimated values rather than the common values will help explain 33% more of consumption volatility. We also study the role of EIS in the consumption response to a monetary shock in a Smets & Wouters (2003) model as a benchmark for New-Keynesian monetary models. Results indicate that the monetary policy shock has less impact on consumption in a country with lower elasticity of intertemporal substitution.

Keywords: Elasticity of Intertemporal Substitution; Euler Equation; Synthetic Panel (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://jme.mbri.ac.ir/article-1-229-en.pdf (application/pdf)
http://jme.mbri.ac.ir/article-1-229-en.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mbr:jmonec:v:11:y:2016:i:2:p:207-223

Access Statistics for this article

More articles in Journal of Money and Economy from Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran Contact information at EDIRC.
Bibliographic data for series maintained by M. E. (m.einian@mbri.ac.ir).