Atlanta Fed paper finds low elasticity of intertemporal substitution
A Federal Reserve Bank of Atlanta paper published on January 19 shows consumption growth is far less responsive to interest rate adjustments than existing studies have indicated.
Anton Braun and Tomoyuki Nakajima, the paper's authors, identify two ways to reconcile a low intertemporal elasticity of substitution (IES) with previous evidence that has been used to argue that the IES is close to one. IES is a measure of responsiveness of the growth rate of consumption to the real interest rate. They
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