Making the Case for a Low Intertemporal Elasticity of Substitution

R. Braun and Tomoyuki Nakajima

No 788, KIER Working Papers from Kyoto University, Institute of Economic Research

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. This is done using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test. That test indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.

Keywords: Uncertainty; Intertemporal elasticity of substitution; Risk aversion; Business Cycles; Growth. (search for similar items in EconPapers)
JEL-codes: E21 E32 O41 (search for similar items in EconPapers)
Pages: 30pages
Date: 2011-10
New Economics Papers: this item is included in nep-dge, nep-mac 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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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:788

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