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Elasticity of intertemporal substitution in the euro area

Giang Nghiem and Michal Marencak

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: This paper estimates the elasticity of intertemporal substitution for the euro area. It leverages the unique design of the Consumer Expectations Survey in Europe to directly infer it from the Euler equation. Our final estimates range between 0.7 and 0.8 for the euro area as a whole, which are higher than those for the US. We also observe economically sizeable heterogeneity across the member states, and over time. Belgium, Germany, and the Netherlands have lower elasticity compared to France, Spain, and Italy. The implications are discussed.

Keywords: inflation; expectations; consumption; intertemporal elasticity of substitution; Euler equation; Consumer Expectations Survey (search for similar items in EconPapers)
JEL-codes: D12 D15 D84 E21 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-08
New Economics Papers: this item is included in nep-eec and nep-eur
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