Estimating the elasticity of intertemporal substitution taking into account the precautionary savings motive

Resumo

This paper estimates the elasticity of intertemporal substitution for U.S. aggregate time series data, taking into account the precautionary savings motive. By making use of a recursive utility function, we estimate an Euler equation, via GMM. This procedure leads consumption growth rate to depend on asset returns, and on a time-varying variance, which captures the precautionary motive. When significant, the elasticity of intertemporal substitution estimates ranges from 0.4 to 1.8, which are higher than most of the results found in the literature. Furthermore, the evidence suggests that consumers react to risk; however, the contribution of precautionary motive to consumption growth seems to be limited. (C) 2015 Elsevier Inc. All rights reserved.

Ficha do documento

Tipo

Artigo científico

Ano

2015

Instituição

Elsevier Science Bv

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.jmacro.2015.04.001

Identificador

oai:repositorio.fgv.br:10438/23497

Temas

Economia

Palavras-chave

ConsumptionAsset returnsElasticity of intertemporal substitutionPrecautionary savingsNonexpected utilityEconomiaConsumo