The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom

As Robert E. Hall (1988) notes, the magnitude of the intertemporal elasticity of substitution in consumption is "one of the central questions of macroeconomics." Do higher expected real interest rates lead to deferred consumption? The authors extend Hall's methodology and model, and compare results for the United Sta tes and the United Kingdom. In both cases, they directly estimate the mo ving average process that temporal aggregation might induce in the random disturbances and take account of consumers who do not follow the lif e cycle-permanent income model of consumption. Copyright 1992 by MIT Press.