The Rate of Interest or the Rate of Return: Estimating Intertemporal Elasticity of Substitution

摘要: This paper investigates whether the rate of interest such as Treasury bill or return on a household portfolio is more relevant to household’s intertemporal decision making. In current era, households are diversifiers (to use Tobin’s 1958 term) and hold portfolios assets rather than simple loan. A earns composite accounting for capital gains, taxes, inflation, rational agents make spending decisions based expected total returns single asset. The measure we includes financial stocks bonds real asset, residential housing. particular, estimate elasticity substitution, namely, how change in asset affects consumption growth. estimates obtained using after-tax about 0.15-0.3 robust linear nonlinear estimations, different measures, various time periods those by individual rate.