NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Intertemporal Substitution in Macroeconomics

N. Gregory Mankiw, Julio J. Rotemberg, Lawrence H. Summers

NBER Working Paper No. 898 (Also Reprint No. r0752)
Issued in June 1982
NBER Program(s):   EFG

Modern neoclassical theories of the business cycle posit that aggregate fluctuations in consumption and employment are the consequence of dynamic optimizing behavior by economic agents who face no quantity constraint. In this paper, we estimate an explicit model :f this type. In particular, we assume that the observed fluctuations correspond to the decisions of an optimizing representative individual. This individual has a stable utility function which is additively separable over time but not necessarily additively separable in consumption and leisure. We estimate three first order conditions which represent three margins on which the individual is optimizing. He can trade off present consumption for future consumption, present leisure for future leisure and present consumption for present leisure. Our results show that the aggregate U.S. data are extremely reluctant to be characterized by a model of this type. Not only are the overidentifying restrictions statistically rejected but, in addition, the estimated utility function is often not concave. Even when it is concave the estimates imply that either consumption or leisure is an inferior good.

download in pdf format
   (382 K)

email paper

This paper is available as PDF (382 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0898

Published: Mankiw, N. Gregory, Julio J. Rotemberg and Lawrence H. Summers. "Intertemporal Substitution in Macroeconomics." Quarterly Journal of Economics, Vol. 100, (Feb. 1985, pp. 225-251. citation courtesy of

Users who downloaded this paper also downloaded these:
Hall w0720 Intertemporal Substitution in Consumption
Barro and King w0888 Time-Separable Preference and Intertemporal-Substitution Models of Business Cycles
Attanasio and Weber w15756 Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy
Gruber w11945 A Tax-Based Estimate of the Elasticity of Intertemporal Substitution
Vissing-Jorgensen w8896 Limited Asset Market Participation and the Elasticity of Intertemporal Substitution
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us