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On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility

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  • MASAKATSU OKUBO

Abstract

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. Copyright (c) 2008 The Ohio State University.

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  • Masakatsu Okubo, 2008. "On the Intertemporal Elasticity of Substitution under Nonhomothetic Utility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1065-1072, August.
    • Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:5:p:1065-1072
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    1. Hanoch, Giora, 1977. "Risk Aversion and Consumer Preferences," Econometrica, Econometric Society, vol. 45(2), pages 413-426, March.
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    3. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-1157, December.
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    6. Martin Browning & Thomas F. Crossley, 2000. "Luxuries Are Easier to Postpone: A Proof," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1022-1026, October.
    7. Atkeson, Andrew & Ogaki, Masao, 1996. "Wealth-varying intertemporal elasticities of substitution: Evidence from panel and aggregate data," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 507-534, December.
    8. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
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    Cited by:

    1. David Cashin & Takashi Unayama, 2016. "Measuring Intertemporal Substitution in Consumption: Evidence from a VAT Increase in Japan," The Review of Economics and Statistics, MIT Press, vol. 98(2), pages 285-297, May.
    2. Bhatt, Vipul & Kishor, N. Kundan, 2023. "(In)Stability of the relationship between relative expenditure and prices of durable and non-durable goods," MPRA Paper 117688, University Library of Munich, Germany.
    3. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.
    4. Flamini, Alessandro & Fracasso, Andrea, 2011. "Household's preferences and monetary policy inertia," Economics Letters, Elsevier, vol. 111(1), pages 64-67, April.
    5. Farzana Naheed Khan & Eatzaz Ahmad, 2022. "Intertemporal substitution in import demand and the role of habit formation: an application of Euler equation approach for Pakistan," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(1), pages 95-124, January.
    6. Daniel Leigh, 2010. "Monetary Policy and the Lost Decade: Lessons from Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 833-857, August.
    7. Mr. Daniel Leigh, 2009. "Monetary Policy and the Lost Decade: Lessons from Japan," IMF Working Papers 2009/232, International Monetary Fund.
    8. Daniel Leigh, 2010. "Monetary Policy and the Lost Decade: Lessons from Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 833-857, August.

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