Intertemporal Substitution in Consumption: An American Investigation for Brazil

Abstract

This paper examines different formulations of the Euler equation in order to assess their magnitude of the intertemporal substitution effect in Brazil during the 1980. Estimates of the intertemporal elasticity of substitution for those consumers that are not liquidity constrained are statistically significant, but less than one. The result suggest that an increase in interest rates in Brazil during this period had both income and substitution effects.