Elasticity of intertemporal substitution in the euro area

Research output: Contribution to journalArticleResearchpeer review

Authors

  • Michal Marenčák
  • Giang Nghiem

Research Organisations

External Research Organisations

  • National Bank of Slovakia
  • Centre for Applied Macroeconomic Analysis (CAMA)
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Details

Original languageEnglish
Article number106847
Number of pages18
JournalJournal of Economic Behavior and Organization
Volume229
Early online date11 Dec 2024
Publication statusPublished - 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

Cite this

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

Research output: Contribution to journalArticleResearchpeer 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 Dec 11. doi: 10.1016/j.jebo.2024.106847
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