| The elasticity of intertemporal substitution (EIS) is crucial to the field of macroe-conomics and financial economics and it is fair to say there is still no consensus about the value of EIS. Using12years data from20countries around the world, this paper is devoted to get a better estimation of this value. I find that the traditional instrumental variable approach is indeed with a lot of problems and it is necessary to consider the strong correlation between countries given the integration of the global economy. I adopt the Common Correlated Effects (CCE) approach proposed by Pesaran (2006) to re-estimate the EIS among all countries. The result shows that, EIS is small and statis-tically insignificant in China, along with other countries. Specifically, all estimation is smaller than1, which could not help with the equity premium puzzle. |
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