Download or read book Estimating the Elasticity of Intertemporal Substitution when Instruments are Weak written by Motohiro Yogo and published by . This book was released on 2004 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimating the Intertemporal Substitution Elasticity written by Fang Liu and published by . This book was released on 2009 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the intertemporal substitution elasticity (EIS) under a simple proxy method and instrument variable (IV) methods, addressing the seasonality effect, wealth-related fluctuation in relative risk aversion (RRA), and the time aggregation problem. The empirical tests are based on the pooled data consisting of 24 countries and two sub-samples, namely, continental European and emerging countries. The proxy method generates theoretically unacceptable negative EIS everywhere and its underlying assumption of martingale inflation is rejected. TSLS does hardly better, but GMM produces significantly positive EIS estimates. Enriching the regression equation with consumption seasonals and effects from asset markets - modeled as both main effects and interactions with the real interest rate, as theory suggests - again produces significantly positive, and higher, EIS. The resulting RRA, 1 to 4, chimes well with the numbers found in unconditional market-portfolio studies within a mean-variance framework.

Download or read book Using Micro Data to Estimate the Intertemporal Substitution Elasticity for Labor Supply in an Implicit Contract Model written by John C. Ham and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economists have devoted substantial resources to estimating the intertemporal substitution elasticity for labor supply because this elasticity plays a crucial role in the real business cycle literature. Generally, the estimates of the elasticity have been too low to explain business cycles. Economists have responded by trying to modify real business cycle models to allow for smaller elasticities, but they have experienced mixed success at best. However, the standard intertemporal substitution model has not done well when tested, and if this model is incorrect, so will be the estimated labor supply elasticities based upon it. An equilibrium alternative to the standard intertemporal labor supply model is the implicit contract model. In this latter model firms and workers bargain over state-contingent contracts denominated in terms of consumption and hours of work. Further, the price of leisure is the marginal product of labor or the shadow wage, which differs from the observed wage. A number of studies have found that the data are compatible with an implicit contract model; in particular in Ham and Reilly (2002) we found that we could reject a separable (within period) implicit contract model but not a non-separable one. If an implicit contract model is appropriate, this is the context in which we should try to estimate the intertemporal labor supply elasticity. However this estimation is potentially quite difficult with micro data since the shadow wage (marginal product of labor) is unobserved. In this paper we first develop a procedure that allows one to estimate the intertemporal substitution elasticity in an implicit contract model from micro data. We then implement this procedure using the Panel Study of Income Dynamics (PSID) and the Consumer Expenditure Survey (CES). We obtain statistically significant elasticities of 0.9 with the PSID and 1.0 with the CES. The consistency of the estimate across the data sets is impressive given that we use different estimation approaches (micro data versus synthetic cohorts) and different consumption measures (food consumption versus total nondurable consumption) in the two data sets. These results are three times larger than existing estimates based on the standard intertemporal supply elasticity from this data set and thus offer more hope that equilibrium perspectives on the labor market are capable of tracking the data. Given that the implicit contract model is less likely to be rejected than the standard model in our work and other research, we believe that our approach should prove to be quite useful.

Download or read book Estimation of Elasticity of Intertemporal Substitution Empirical Monetary Economics written by Julian Fischer and published by GRIN Verlag. This book was released on 2020-12-09 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2020 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,0, University of Hannover (Institut für Geld und Internationale Finanzwirtschaft), course: Empirical Monetary Economics Using Microdata, language: English, abstract: In this thesis the predictive power of individual survey participants on expected macroeconomic values is analysed. The research results of Crump (2015) are investigated and the elasticity of intertemporal substitution (EIS) is estimated according to their model. The core estimate results in an EIS coefficient of 0.839, which is marginally higher than previous results in literature. Considering the predictive power, demographic variables, sensitivity components, and time dependent fixed effects, the range is approximately 0.6 to 0.9, depending on the specification, where the estimated EIS values range. In particular the subdivision in different levels of education allows interesting and validated implications. The interpretation of the EIS offers a helpful contribution for many market actors and especially economic policymakers. For example, the effectiveness and targeting accuracy of an economic stimulus plan in the current corona crisis could be increased with the help of the empirical findings of the EIS. Especially in times of crisis, such as the current corona pandemic, we are repeatedly reminded that in our economic world all market participants and institutions are deeply interconnected due to dependencies and expectations. Not only central banks, which in recent years have been accused of having a reduced capacity to act as a result of low interest rate policies, but also investors, entrepreneurs and governments are interested in gaining a deeper understanding of the impact of expectations on real value development.

Download or read book Estimating the Elasticity of Intertemporal Substitution with Household Specific Portfolios written by Yosef Bonaparte and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates the Elasticity of Intertemporal Substitution (EIS) using household actual return. The approach is motivated by numerous data sources indicate that the median US stockholder has a portfolio contains three to four individual stocks, rather than a diverse bundle. Thus, representing individual household portfolio by a proxy financial index (which is the common approach taken in the literature) may be too rough an approximation and lead to biased results about risk aversion and intertemporal substitution. Eschewing the financial index methodology, our results show support for the standard representative agent assumption that there is a high degree of homogeneity in the EIS across households with different wealth levels. Our findings have implications for models that assess the comovement between consumption and return on stocks.

Download or read book Three Essays in Estimating Intertemporal Substitution Elasticities of Home Production written by Kun Nam James Yu and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contains three essays that estimate the intertemporal substitution elasticities of a life cycle model that includes home production. The first essay studies the impact of including home work hours in the estimated intertemporal substitution elasticity of labor supply. We use the employment information of employed males obtained from Panel Study in Income Dynamics and Canadian Time Use datasets. We then estimate the elasticities using a two-stage estimation strategy. Our results suggest that the estimated inter-temporal substitution elasticity in the extended home production life cycle model is lower than the one in standard life cycle model without including home production. Our results are in contrast to the results obtained by Rupert et al. (2000), where they report the estimated inter-temporal substitution elasticity in the home production model to be higher than the one in standard life cycle model. The second essay critically evaluates the estimated results obtained by Rupert et al. (2000). We investigate the estimated employed male labor supply elasticities of the home production function by using the Three Time Use datasets that are employed by Rupert et al. By utilizing the two-stage estimation strategy and the generalized least square estimating method, we find that there is no evidence indicating that the estimated inter-temporal labor elasticities of employed male with home production are higher than the ones without home production. The final essay measures the inter-temporal labor supply elasticities with home production using various employed female datasets as well as different estimation methods. Using the same methodology and datasets as the previous two essays, we find that the empirical results do not provide any conclusive evidence to support the hypothesis that the home production function has increased the estimated intertemporal substitution elasticity of employed female compared to the previous results estimated without home production. Overall, the estimated results of all three essays indicate that there seems to be some willingness to substitute total (market and home) hours over the life cycle for both the employed male group and the employed female group, but it is most likely smaller than the willingness to substitute market hours over the life cycle in response to wage changes. [PUBLICATION ABSTRACT].

Download or read book Measuring Intertemporal Substitution written by Masao Ogaki and published by . This book was released on 1999 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In estimating the intertemporal elasticity of substitution, Hall finds that, when one takes account of time aggregation, point estimates are small and not significantly different from zero. He concludes that the elasticity is unlikely to be much above 0.1 and may well be zero. Applying improved inference methods to an economic model similar to Hall's, Hansen and Singleton show that there is considerably less precision in the estimation. We argue that the model used by these authors is misspecified because the intratemporal substitution between nondurable consumption goods and durable consumption goods is ignored. We use a two-step procedure that combines a cointegration approach to preference parameter estimation with generalized method of moments to take these effects into account. Our estimates for the intertemporal elasticity of substitution are positive and significantly different from zero, even when time aggregation is taken into account.

Download or read book Intertemporal Substitution in Consumption Revisited written by Zuliu Hu and published by International Monetary Fund. This book was released on 1993-03 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Some of the highly controversial questions in macroeconomics critically hinge on the value of a single parameter of consumer preference--the elasticity of intertemporal substitution. This paper provides new estimates of this parameter for individual G-7 and a panel of twenty OECD countries. We find that single equation GMM estimates are typically small and imprecise, consistent with Hall’s (1988) finding from the U.S. data. Estimation of a system of equations that takes into account the cross-equation restrictions implied by theory, however, generally gives larger and better determined values for the parameter. The panel procedure also yields relatively large estimates. Overall our multi-country results contradict the hypothesis of zero intertemporal substitution.

Download or read book Estimating Intertemporal Elasticity of Substitution in a Sticky Price Model written by Juha Kilponen and published by . This book was released on 2013 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Estimating the Elasticity of Intertemporal Substitution Using Mortgage Notches written by Michael Best and published by . This book was released on 2018 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a novel source of quasi-experimental variation in interest rates, we develop a new approach to estimating the Elasticity of Intertemporal Substitution (EIS). In the UK, the mortgage interest rate features discrete jumps -- notches -- at thresholds for the loan-to-value (LTV) ratio. These notches generate large bunching below the critical LTV thresholds and missing mass above them. We develop a dynamic model that links these empirical moments to the underlying structural EIS. The average EIS is small, around 0.1, and quite homogeneous in the population. This finding is robust to structural assumptions and can allow for uncertainty, a wide range of risk preferences, portfolio reallocation, liquidity constraints, present bias, and optimization frictions. Our findings have implications for the numerous calibration studies that rely on larger values of the EIS.

Download or read book A Tax based Estimate of the Elasticity of Intertemporal Substitution written by Jonathan Gruber and published by . This book was released on 2006 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the most important behavioral parameters in macroeconomics is the elasticity of intertemporal substitution (EIS). Starting with the seminal work of Hall (1978), researchers have used an Euler equation framework to estimate the EIS, relating the growth rate of consumption to the after-tax interest rate facing consumers . This large literature has, however, produced very mixed results, perhaps due to an important limitation: the impact of the interest rate on consumption or savings is identified by time series movements in interest rates. Yet the factors that cause time series movements in interest rates may themselves be correlated with consumption or savings decisions. I address this problem by using variation across individuals in the capital income tax rate. Condidtional on observable characteristics of individuals, tax rate movements cause exogenous shifts in the after-tax interest rate. Using data on total non-durable consumption from the Consumer Expenditure Survey over two decades, I estimate a surprisingly high EIS of 2. This finding is robust to a variety of specification checks.

Download or read book Alternative Specifications for Consumption and the Estimation of the Intertemporal Elasticity of Substitution written by Paul Beaudry and published by . This book was released on 1992 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Limited Asset Market Participation and the Elasticity of Intertemporal Substitution written by Annette Vissing-Jorgensen and published by . This book was released on 2002 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper presents empirical evidence based on the US Consumer Expenditure Survey that accounting for limited asset market participation is important for estimating the elasticity of intertemporal substitution (EIS). Differences in estimates of the EIS between assetholders and non-assetholders are large and statistically significant. This is the case whether estimating the EIS based on the Euler equation for stock index returns or the Euler equation for T-bills, in each case distinguishing between assetholders and non-assetholders as best possible. Estimates of the EIS are around 0.3-0.4 for stockholders and around 0.8-1 for bondholders, and are larger for households with larger asset holdings within these two groups

Download or read book Intertemporal Substitution in a Monetary Framework written by Patricio Arrau and published by . This book was released on 1990 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Euler approach seems to work better when money is considered. For both Chile and Mexico the estimates of the intertemporal elasticity of substitution are greater than one.

Download or read book On the Intertemporal Elasticity of Substitution written by Jonathan Adam Poeder and published by . This book was released on 2007 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis investigates the relationships among the average household's income evolution, consumption patterns, and labor supply decisions using data from the Panel Study of Income Dynamics. Demand studies such as this have, in the past, focused myopically on either labor supply or commodity demand. The conjoined approach taken here is novel in that it considers labor supply and commodity demand simultaneously. By using a Frisch framework for consumption and labor supply, along with estimating a simultaneous equation model, unbiased parameter estimates may be found. Acid that is the ultimate goal; the significance of which includes, but is not limited to, the ability to accurately calculate welfare changes resulting from tax policy adjustment.

Download or read book Intertemporal Substitution in Consumption written by Robert Ernest Hall and published by . This book was released on 1981 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Does a higher real interest rate induce significant postponement of consumption? According to the theory developed here, this question can be answered by studying the relation between the rate of growth of consumption and expected real interest rates. In postwar data for the United States, expected real returns have declined over time in the stock market and for savings accounts. Over the same period, the rate of growth of consumption has been almost steady. The paper concludes that intertemporal substitution is weak, for if it were strong, the growth rate of consumption would have declined.

Download or read book Intertemporal Substitution in Consumption written by Julian Thimme and published by . This book was released on 2015 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the status quo of the empirical literature about the elasticity of intertemporal substitution (EIS) in consumption. Aiming to answer the question what the true magnitude of the parameter really is, it discusses several recent advances of the theory and highlights challenges for the estimation. Although the general discussion still seems to be prevailed by Hall's early EIS estimates close to zero, we show that several deviations from the time-additive constant relative risk aversion model speak in favor of considerably higher values. Our treatment is supposed to provide researchers a hint at which parameter is a reasonable and incontrovertible choice for the calibration of models in macroeconomics and finance.