Subjective intertemporal substitution

Using subjective expectations data from the New York Fed’s Survey of Consumer Expectations (SCE), we estimate elasticity intertemporal substitution (EIS)—the response expected consumption growth to changes in real interest rate. This unique set allows us Euler equation with no auxiliary assumptions on properties expectations, which are instead necessary when using choice data. We find a EIS about 0.5, consistent results much literature. In addition, planned displays excess sensitivity income changes, even among households not facing substantial liquidity constraints.