Details
Original language | English |
---|---|
Article number | 106847 |
Number of pages | 18 |
Journal | Journal of Economic Behavior and Organization |
Volume | 229 |
Early online date | 11 Dec 2024 |
Publication status | Published - 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.
Keywords
- Consumer Expectations Survey, Consumption, Euler equation, Expectations, Inflation, Intertemporal elasticity of substitution
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Business, Management and Accounting(all)
- Organizational Behavior and Human Resource Management
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In: Journal of Economic Behavior and Organization, Vol. 229, 106847, 01.2025.
Research output: Contribution to journal › Article › Research › peer review
}
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 -