Measuring intertemporal substitution: The role of durable goods

Masao Ogaki, Carmen M. Reinhart

Research output: Contribution to journalArticle

172 Citations (Scopus)

Abstract

In estimating the intertemporal elasticity of substitution, Hall finds that, when one takes account of time aggregation, point estimates are small and not significantly different from zero. He concludes that the elasticity is unlikely to be much above 0.1 and may well be zero. Applying improved inference methods to an economic model similar to Hall's, Hansen and Singleton show that there is considerably less precision in the estimation. We argue that the model used by these authors is misspecified because the intratemporal substitution between nondurable consumption goods and durable consumption goods is ignored. We use a two-step procedure that combines a cointegration approach to preference parameter estimation with generalized method of moments to take these effects into account. Our estimates for the intertemporal elasticity.

Original languageEnglish
Pages (from-to)1078-1098
Number of pages21
JournalJournal of Political Economy
Volume106
Issue number5
DOIs
Publication statusPublished - 1998

Keywords

  • Economic theory
  • Elasticity
  • Methodology
  • Substitution

ASJC Scopus subject areas

  • Economics and Econometrics

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