The Intertemporal Elasticity of Substitution: An Analysis Based on Japanese Data

Abstract

This paper investigates whether the intertemporal elasticity of substitution (IES) for Japan possesses similar properties to that found for the United States in the literature. As the existing empirical findings are mixed, there is no clear consensus. This paper uses a model with both production and non‐separability between nondurables and durables in order to control for possible factors that cause a bias in the IES. We present the empirical results, demonstrating that the IES is quite similar between the two countries.