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The Elasticity of Intertemporal Substitution Reconsidered

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  • Dladla, Pholile
  • Malikane, Christopher
  • Ojah, Kalu

Abstract

The elasticity of intertemporal substitution (EIS) is a crucial parameter in finance and macroeconomics, yet its estimation remains elusive. We show, based on Fisher's relation and the expectations theory of the term structure, that the EIS is the inverse of the product of the average term to maturity of debt instruments and the consumption-output ratio. Therefore, the EIS need not be estimated but can be calibrated from observable data.

Suggested Citation

  • Dladla, Pholile & Malikane, Christopher & Ojah, Kalu, 2014. "The Elasticity of Intertemporal Substitution Reconsidered," MPRA Paper 55547, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55547
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    References listed on IDEAS

    as
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    2. repec:fth:jonhop:390 is not listed on IDEAS
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    More about this item

    Keywords

    Elasticity of intertemporal substitution; Fisher's relation; expectations theory of the term structure.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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