Economics at your fingertips  

The Cross-Euler Equation Approach in Estimating the Elasticity of Intertemporal Substitution for Food and Non-Food Consumption in Japan

Shin-Ichi Nishiyama and Masao Ogaki

No 275, TERG Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: We use the standard two-good version of the life cycle/permanent income model in analyzing the intratemporal and intertemporal aspect of food and non-food expenditure in Japan. The empirical dilemma in identifying and estimating the parameters governing the intertemporal elasticity of substitution (IES) is addressed. In overcoming this empirical dilemma we employ the Cross-Euler equation approach proposed by Nishiyama (2005). The IES parameters are estimated by exploiting the cointegration restriction implied by the Cross-Euler equation and also from the standard Euler equation using GMM. Further, by comparing the IES estimates from the Cross-Euler equation to those from the standard Euler equation, we formally test the hypothesis whether food and non-food expenditure in Japan is affected by some factors that cause misspecification in the standard Euler equation approach, such as liquidity constraints or habit formation.

Pages: 32 pages
Date: 2011-09
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)

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:

Access Statistics for this paper

More papers in TERG Discussion Papers from Graduate School of Economics and Management, Tohoku University Contact information at EDIRC.
Bibliographic data for series maintained by Tohoku University Library ().

Page updated 2023-03-26
Handle: RePEc:toh:tergaa:275