Temporary and permanent changes in consumption growth

This paper examines whether demographic variables and other household characteristics are more likely to affect the intercept of the Euler equation or the intertemporal elasticity of substitution (ISE) of the household. Analysis of British data suggests that demographics affect the growth rate of consumption in a purely transitory way, while the educational level and the employment status of the wife appear to have a significant effect on the ISE. The effect of the employment status of the head is more uncertain. After taking these differences into account, the hypothesis of no excess sensitivity cannot be rejected for households with two earners.