Cross-Country Heterogeneity in Intertemporal Substitution

41 Pages Posted: 15 Sep 2013

See all articles by Tomas Havranek

Tomas Havranek

Charles University in Prague; Centre for Economic Policy Research (CEPR)

Roman Horvath

Charles University in Prague; IOS Regensburg; Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Zuzana Irsova

Charles University in Prague

Marek Rusnak

Czech National Bank (CNB); Charles University in Prague

Date Written: August 12, 2013

Abstract

We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in developing countries and countries with low stock market participation substitute a smaller fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of poor households or households not participating in asset markets also find systematically smaller values of the elasticity.

Keywords: elasticity of intertemporal substitution, consumption, meta-analysis, Bayesian model averaging

JEL Classification: C83, D91, E21

Suggested Citation

Havranek, Tomas and Horvath, Roman and Irsova, Zuzana and Rusnak, Marek, Cross-Country Heterogeneity in Intertemporal Substitution (August 12, 2013). William Davidson Institute Working Paper No. 1056, Available at SSRN: https://ssrn.com/abstract=2324903 or http://dx.doi.org/10.2139/ssrn.2324903

Tomas Havranek (Contact Author)

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Roman Horvath

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

IOS Regensburg

Landshuter Str. 4
Regensburg, 93047
Germany

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG)

250, rue Albert Einstein
Valbonne, 06560
France

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Lyon
France

Zuzana Irsova

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Marek Rusnak

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Charles University in Prague

Celetná 13
Praha 1, 116 36
Czech Republic

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