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:: Volume 11, Issue 2 (Spring 2016) ::
J. Mon. Ec. 2016, 11(2): 207-223 Back to browse issues page
Elasticity of Intertemporal Substitution: An Investigation in Iran
Majid Einian * 1, Masoud Nili1
1- Graduate School of Management and Economics, Sharif University of Technology
Abstract:   (225 Views)
We 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 Cycle (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 ClassificationD91, E21

Keywords: Elasticity of Intertemporal Substitution, Euler Equation, Synthetic Panel
Full-Text [PDF 227 kb]   (126 Downloads)    
Type of Study: Research | Subject: Macroeconomics
Received: 2017/09/18 | Accepted: 2017/12/11
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Einian M, Nili M. Elasticity of Intertemporal Substitution: An Investigation in Iran. J. Mon. Ec.. 2016; 11 (2) :207-223
URL: http://jme.mbri.ac.ir/article-1-229-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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