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On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility
Author(s) -
OKUBO MASAKATSU
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00146.x
Subject(s) - elasticity of substitution , economics , homothetic transformation , elasticity (physics) , substitution (logic) , elasticity of intertemporal substitution , econometrics , price elasticity of demand , microeconomics , mathematical economics , mathematics , thermodynamics , computer science , growth model , physics , production (economics) , geometry , programming language
In this note, we use a model with nonseparable and nonhomothetic preferences to estimate the intertemporal elasticity of substitution (IES). We show that, while the homothetic utility model may induce a bias that increases the elasticity of substitution between nondurables and durables, the estimated IES remains positive and significant.