Consumption adjustment to real interest rates: intertemporal substitution revisited
Article Abstract:
Consumption growth positively reacts to variations in expected real interest rates. Analysis of US aggregate data after World War II revealed that elasticity of substitution in consumption has the tendency to hover around 0.3. The level of elasticity tends to become higher in situations where time aggregation bias, different sample periods and alternative formulations of the permanent income consumption model exist.
Publication Name: Journal of Economic Dynamics & Control
Subject: Economics
ISSN: 0165-1889
Year: 1998
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A reconsideration of the (in)sensitivity of tests of the intertemporal allocation of consumption to near rational alternatives
Article Abstract:
The utility loss suffered by consumers in terms of dollar value results to a shift of implications for the study of market imperfections and bounded rationality. Large utility losses are found to result from insignificant deviations from the optimal consumption allocation rule. Additionally, the utility loss incurred from near-rational behavior proved to be extremely substantial.
Publication Name: Journal of Economic Dynamics & Control
Subject: Economics
ISSN: 0165-1889
Year: 1997
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