Premium
INTERTEMPORAL SUBSTITUTION IN CONSUMPTION: A LITERATURE REVIEW
Author(s) -
Thimme Julian
Publication year - 2017
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/joes.12142
Subject(s) - economics , elasticity of intertemporal substitution , consumption (sociology) , substitution (logic) , econometrics , elasticity of substitution , status quo , constant elasticity of substitution , risk aversion (psychology) , positive economics , mathematical economics , microeconomics , macroeconomics , expected utility hypothesis , interest rate , production (economics) , computer science , sociology , social science , market economy , programming language
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.