Elasticity of intertemporal substitution

Measure of responsiveness of growth rate of consumption

In economics, elasticity of intertemporal substitution is a measure of responsiveness of the growth rate of consumption to the real interest rate. If the real interest rate rises, current consumption may decrease due to increased return on savings; but current consumption may also increase as the household decides to consume more immediately, as it is feeling richer. The net effect on current consumption is the elasticity of intertemporal substitution.

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