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:: Volume 11, Issue 2 (Spring 2016) ::
jme 2016, 11(2): 207-223 Back to browse issues page
Elasticity of Intertemporal Substitution: An Investigation in Iran
Majid Einian , Masoud Nili
Graduate School of Management and Economics, Sharif University of Technology, Tehran, Iran
Abstract:   (312 Views)
We[1] present estimates of the Elasticity of Intertemporal Substitution (EIS) for Iranian households using synthetic cohort panels based on household micro-data. Results show significant difference with the common values used in Dynamic Stochastic General Equilibrium (DSGE) models which are originally based on estimated values for developed countries. We show that this difference has important theoretical and practical implications. In a simple Real Business Cylce (RBC) setting using the estimated values rather than the common values will help explain 33% more of consumption volatility. We also study the role of EIS in the consumption response to a monetary shock in a Smets & Wouters (2003) model as a benchmark for New-Keynesian monetary models. Results indicate that the monetary policy shock has less impact on consumption in a country with lower elasticity of intertemporal substitution.

JEL Classification: D91, E21

 
[1] This paper is a part of results of the PhD thesis of first author under supervision of second author at Graduate School of Management and Economics, Sharif University of Technology.
Keywords: Elasticity of Intertemporal Substitution, Euler Equation, Synthetic Panel
Full-Text [PDF 227 kb]   (114 Downloads)    
Type of Study: Research | Subject: Economics
Received: 2018/06/12 | Accepted: 2018/06/12 | Published: 2018/06/12
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Einian M, Nili M. Elasticity of Intertemporal Substitution: An Investigation in Iran. jme. 2016; 11 (2) :207-223
URL: http://jme.mbri.ac.ir/article-1-276-en.html


Volume 11, Issue 2 (Spring 2016) Back to browse issues page
Journal of Money and Economy Journal of Money And Economy
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