Making the case for a low intertemporal elasticity of substitution

R. Braun and Tomoyuki Nakajima

No 2011-13, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: We provide two ways to reconcile small values of the intertemporal elasticity of substitution (IES) that range between 0.35 and 0.5 with empirical evidence that the IES is large. We do this reconciliation using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test, which indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.

Date: 2011
New Economics Papers: this item is included in nep-cba, nep-dge and nep-upt
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Related works:
Working Paper: Making the case for a low intertemporal elasticity of substitution (2012)
Working Paper: Making the Case for a Low Intertemporal Elasticity of Substitution (2011)
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