NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Limited Asset Market Participation and the Elasticity of Intertemporal Substitution

Annette Vissing-Jorgensen

NBER Working Paper No. 8896
Issued in April 2002
NBER Program(s):   EFG

The paper presents empirical evidence based on the US Consumer Expenditure Survey that accounting for limited asset market participation is important for estimating the elasticity of intertemporal substitution (EIS). Differences in estimates of the EIS between assetholders and non-assetholders are large and statistically significant. This is the case whether estimating the EIS based on the Euler equation for stock index returns or the Euler equation for T-bills, in each case distinguishing between assetholders and non-assetholders as best possible. Estimates of the EIS are around 0.3-0.4 for stockholders and around 0.8-1 for bondholders, and are larger for households with larger asset holdings within these two groups.

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Document Object Identifier (DOI): 10.3386/w8896

Published: Vissing-Jorgensen, Annette. "Limited Asset Market Participation And The Elasticity Of Intertemporal Substitution," Journal of Political Economy, 2002, v110(4,Aug), 825-853.

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