Estimating the Elasticity of Intertemporal Substitution Using Mortgage Notches

• 成果类型: Article
• 署名作者: Best, Michael Carlos; Cloyne, James S.; Ilzetzki, Ethan; Kleven, Henrik J.
• 署名单位: Columbia University; National Bureau of Economic Research; University of California System; University of California Davis; University of London; London School Economics & Political Science
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdz025
• 发表日期: 2020
• 页码: 656-690
• 关键词: consumption growth; accumulation; optimization; responses; demand; habit

摘要

Using a novel source of quasi-experimental variation in interest rates, we develop a new approach to estimating the Elasticity of Intertemporal Substitution (EIS). In the U.K., the mortgage interest rate features discrete jumps-notches-at thresholds for the loan-to-value (LTV) ratio. These notches generate large bunching below the critical LTV thresholds and missing mass above them. We develop a dynamic model that links these empirical moments to the underlying structural EIS. The average EIS is small, around 0.1, and quite homogeneous in the population. This finding is robust to structural assumptions and can allow for uncertainty, a wide range of risk preferences, portfolio reallocation, liquidity constraints, present bias, and optimization frictions. Our findings have implications for the numerous calibration studies that rely on larger values of the EIS.