intertemporal substitution

intertemporal substitution

the substitution of present for future production and consumption, and vice-versa. For example, an economy that consumes a large proportion of its NATIONAL INCOME and saves and invests only a small proportion will tend, as a consequence, to experience slower ECONOMIC GROWTH and smaller consumption in future years than an economy that consumes a low proportion of its national income and saves and invests a high proportion. These trade-offs reflect the TIME PREFERENCE of consumers for current as opposed to future consumption.
References in periodicals archive ?
A Tax-Based Estimate of the Elasticity of Intertemporal Substitution," Quarterly Journal of Finance, 3 (1).
The logic for these suggestions is based on the Fisher equation and the intertemporal substitution effect: if nominal interest rates are fixed, higher inflation expectations lead to lower real interest rates, creating an incentive to spend now rather than in the future.
Another potential limitation is that, in dynamic models with a CRRA per-period utility function with time-separable preferences, the coefficient of relative risk aversion is also the reciprocal of the elasticity of intertemporal substitution (EIS).
The third term summarizes the effect of habits on intertemporal substitution.
c] is the elasticity of intertemporal substitution between core consumption and oil consumption bundle.
The estimated preference parameters require a low elasticity of intertemporal substitution for both nonstockholders and stockholders (around 0.
However, whether it also increases consumption inequality depends on the elasticity of intertemporal substitution.
editorial introduction, extensive editorial notes to the text and two additional appendices; each of the latter relates to Hayek's post-1941 thoughts on the importance of time-preference relative to that of rates of intertemporal substitution in production.
The differences are driven mainly by the dampened wealth effect and the strengthened intertemporal substitution effect, not by the escapes emphasized by Williams (2003).
This number (or more precisely its inverse, how much consumption growth changes when interest rates go up 1%), is usually called the intertemporal substitution elasticity since it captures how much people are willing to defer consumption when presented with a large return opportunity.
These preferences allow the elasticity of intertemporal substitution to be a free parameter, independent of the coefficient of relative risk aversion, whereas power utility forces one to be the reciprocal of the other.