Elasticity of Intertemporal Substitution: An Investigation in Iran مقالة

مؤلف: Einian، Majid ؛ Nili، Masoud ؛

Money and Economy Spring 2016 Volume 11 - Number 2 ، العلمية - البحثية (Ministry of Science/ISC (‎17 صفحة - من 207 إلی 223 )

الکلمات المفتاحية: Elasticity of Intertemporal Substitution Euler Equation Synthetic Panel

خلاصة:

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 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.

ملخص الجهاز:

Elasticity of Intertemporal Substitution: An Investigation in Iran Majid Einian* Masoud Nili† Received: 18 Sep 2017 Approved: 10 Dec 2017 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 also study the role of EIS in the consumption response to a monetary shock in a Smets &amp; Wouters (2003) model as a benchmark for New-Keynesian monetary models. Thus, it represents a parameter of central importance for a wide range of models in macroeconomics and finance involving intertemporal choice, from modeling the behavior of aggregate savings and the impact of fiscal policy to computing the social cost of carbon emissions, and has been estimated by hundreds of researchers. Most of the DSGE models that were developed for Iran have also used the standard parameters for household which reflects the EIS estimations of United States. We estimate Elasticity of Intertemporal Substitution for Iran in this paper using synthetic panel data of household cohorts. (2015) collect 2735 estimates of elasticity of intertemporal substitution in consumption from 169 published papers that cover 104 countries and conclude that a large part of the heterogeneity in EIS is explained by the level of income (per capita GDP) and asset market participation as an indicator of financial development. In contrast we estimate Elasticity of Intertemporal Substitution for Iran using synthetic panel data of household cohorts.

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