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Akihiko Noda and Shunsuke Sugiyama
''Measuring the Intertemporal Elasticity of Substitution for Consumption: Some Evidence from Japan''
( 2010, Vol. 30 No.1 )
The purpose of this paper is to present improved estimates of the intertemporal elasticity of substitution (IES) for Japan assuming a constant relative risk aversion (CRRA) utility function. The estimates of the IES we obtain range from 0.2 to 0.5 when we use quarterly consumption data and the Continuous Updating Estimator (CUE). We find that the IES is weakly identified when we employ the two-step GMM estimator, while the CUE can identify the IES. Moreover, we also find that using consumption data of different frequencies leads to quite different estimates of the IES.
Keywords: Intertemporal Elasticity of Substitution, Relative Risk Aversion, Generalized Method of Moments, Continuous Updating Estimator, Weak Identifi cation
JEL: D9 - Intertemporal Choice and Growth: General
E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment: General (includes Measurement and Data)
Manuscript Received : Sep 02 2009 Manuscript Accepted : Feb 12 2010

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