Trends in Fertility and the Intertemporal Elasticity of Substitution in Dynastic Models

In this paper we study the effects of the intertemporal elasticity of substitution in consumption (IES) on Balanced Growth Path fertility choice in a dynastic model. We find that both the qualitative and quantitative properties of the model are highly sensitive to this key parameter. We give analytic comparative statics results that show why this is true. In versions of the model in which the IES is set to a level common in the RBC literature (less than one) as opposed to levels commonly used in the fertility litterature ala Barro-Becker (larger than one), model predictions of changes in fertility amount to about two-thirds of those observed in U.S. data since 1800. There are two major sources to these predicted changes. The first is the increase in the growth rate of productivity which accounts for about 90 percent of the predicted fall in fertility before 1880. The second is changes in mortality which account for 90 percent of the predicted change from 1880 to 1950. University of Minnesota and Federal Reserve Bank of Minneapolis University of Southampton The authors thank the National Science Foundation for financial support. We also thank Anderson Schneider for valuable research assistance.