Elasticity of intertemporal substitution in the euro area

Publikation: Beitrag in FachzeitschriftArtikelForschungPeer-Review

Autorschaft

  • Michal Marenčák
  • Giang Nghiem

Externe Organisationen

  • Národná banka Slovenska
  • Centre for Applied Macroeconomic Analysis (CAMA)
Forschungs-netzwerk anzeigen

Details

OriginalspracheEnglisch
Aufsatznummer106847
Seitenumfang18
FachzeitschriftJournal of Economic Behavior and Organization
Jahrgang229
Frühes Online-Datum11 Dez. 2024
PublikationsstatusVeröffentlicht - Jan. 2025

Abstract

We leverage the unique design of the ECB Consumer Expectations Survey to directly estimate the Elasticity of Intertemporal Substitution (EIS) for the eurozone and its member countries from the consumers’ Euler equation. Our estimates for the euro area fall between 0.7 and 0.8 and remain stable over time after accounting for the excess sensitivity of planned consumption to expected income changes. Excess income sensitivity was particularly strong during the pandemic years but overall it is much less pronounced in the euro area than in the U.S. We also document substantial heterogeneity in both the EIS and excess income sensitivity across eurozone countries. The implications are discussed.

ASJC Scopus Sachgebiete

Zitieren

Elasticity of intertemporal substitution in the euro area. / Marenčák, Michal; Nghiem, Giang.
in: Journal of Economic Behavior and Organization, Jahrgang 229, 106847, 01.2025.

Publikation: Beitrag in FachzeitschriftArtikelForschungPeer-Review

Marenčák M, Nghiem G. Elasticity of intertemporal substitution in the euro area. Journal of Economic Behavior and Organization. 2025 Jan;229:106847. Epub 2024 Dez 11. doi: 10.1016/j.jebo.2024.106847
Download
@article{bda0a15900b7495c93db3cc66d7d9337,
title = "Elasticity of intertemporal substitution in the euro area",
abstract = "We leverage the unique design of the ECB Consumer Expectations Survey to directly estimate the Elasticity of Intertemporal Substitution (EIS) for the eurozone and its member countries from the consumers{\textquoteright} Euler equation. Our estimates for the euro area fall between 0.7 and 0.8 and remain stable over time after accounting for the excess sensitivity of planned consumption to expected income changes. Excess income sensitivity was particularly strong during the pandemic years but overall it is much less pronounced in the euro area than in the U.S. We also document substantial heterogeneity in both the EIS and excess income sensitivity across eurozone countries. The implications are discussed.",
keywords = "Consumer Expectations Survey, Consumption, Euler equation, Expectations, Inflation, Intertemporal elasticity of substitution",
author = "Michal Maren{\v c}{\'a}k and Giang Nghiem",
note = "Publisher Copyright: {\textcopyright} 2024 The Author(s)",
year = "2025",
month = jan,
doi = "10.1016/j.jebo.2024.106847",
language = "English",
volume = "229",
journal = "Journal of Economic Behavior and Organization",
issn = "0167-2681",
publisher = "Elsevier",

}

Download

TY - JOUR

T1 - Elasticity of intertemporal substitution in the euro area

AU - Marenčák, Michal

AU - Nghiem, Giang

N1 - Publisher Copyright: © 2024 The Author(s)

PY - 2025/1

Y1 - 2025/1

N2 - We leverage the unique design of the ECB Consumer Expectations Survey to directly estimate the Elasticity of Intertemporal Substitution (EIS) for the eurozone and its member countries from the consumers’ Euler equation. Our estimates for the euro area fall between 0.7 and 0.8 and remain stable over time after accounting for the excess sensitivity of planned consumption to expected income changes. Excess income sensitivity was particularly strong during the pandemic years but overall it is much less pronounced in the euro area than in the U.S. We also document substantial heterogeneity in both the EIS and excess income sensitivity across eurozone countries. The implications are discussed.

AB - We leverage the unique design of the ECB Consumer Expectations Survey to directly estimate the Elasticity of Intertemporal Substitution (EIS) for the eurozone and its member countries from the consumers’ Euler equation. Our estimates for the euro area fall between 0.7 and 0.8 and remain stable over time after accounting for the excess sensitivity of planned consumption to expected income changes. Excess income sensitivity was particularly strong during the pandemic years but overall it is much less pronounced in the euro area than in the U.S. We also document substantial heterogeneity in both the EIS and excess income sensitivity across eurozone countries. The implications are discussed.

KW - Consumer Expectations Survey

KW - Consumption

KW - Euler equation

KW - Expectations

KW - Inflation

KW - Intertemporal elasticity of substitution

UR - http://www.scopus.com/inward/record.url?scp=85211468041&partnerID=8YFLogxK

U2 - 10.1016/j.jebo.2024.106847

DO - 10.1016/j.jebo.2024.106847

M3 - Article

AN - SCOPUS:85211468041

VL - 229

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

M1 - 106847

ER -