NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Intertemporal Substitution in Consumption

Robert E. Hall

NBER Working Paper No. 720 (Also Reprint No. r1089)
Issued in July 1981
NBER Program(s):   EFG

Does a higher real interest rate induce significant postponement of consumption? According to the theory developed here, this question can be answered by studying the relation between the rate of growth of consumption and expected real interest rates. In postwar data for the United States, expected real returns have declined over time in the stock market and for savings accounts. Over the same period, the rate of growth of consumption has been almost steady. The paper concludes that intertemporal substitution is weak, for if it were strong, the growth rate of consumption would have declined.

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Document Object Identifier (DOI): 10.3386/w0720

Published: Journal of Political Economy, Vol. 96, No. 2, pp. 339-357, (1988). citation courtesy of

 
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