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Intertemporal Substitution in Consumption

Robert E Hall

Journal of Political Economy, 1988, vol. 96, issue 2, 339-57

Abstract: One of the important determinants of the response of saving and consumption to the real interest rate is the ela sticity of intertemporal substitution. That elasticity can be measure d by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed study of data for the twe ntieth-century United States shows no strong evidence that the elasti city of intertemporal substitution is positive. Earlier findings of s ubstantially positive elasticities are reversed when appropriate esti mation methods are used. Copyright 1988 by University of Chicago Press.

Date: 1988
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