As pointed out by Hall (1988), intertemporal substitution by consumers is a central element of many modem macroeconomic and international models. For example, many of the policy implications of an endogenous growth model studied by Barro (1990) depends on the assumption that the intertemporal elasticity of substitution is positive.In estimating the intertemporal elasticity of substitution (IES), however, Hall (1988) fmds that when time aggregation is taken into account, his point estimates are small and not significantly different from zero.Hall concludes that ti:e elasticity is unlikely to be much above 0.1 and may well be zero. We argue that Hall's estimator for the IES is downward biased because the intra-temporal substitution between nondurable consumption goods and durable consumption goods is ignored and because the changes in real interest rates affect user costs of durable goods.We use a two-step procedure that combines a cointegration approach to preference parameter estimation with Hansen and Singleton's (1982) Generalized Method of Moments approach in order to take these effects into account. In contrast to Hall's result, our estimates for the IES are positive and significantly different from zero even when time aggregation is taken into account. --We thank

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We propose the parametric Dynamic Seemingly Unrelated Regression (DSUR) estimator for simultaneous estimation of multiple cointegrating regressions. DSUR is efficient when the equilibrium errors are correlated across equations and is applicable for panel cointegration estimation in environments where the cross section is small relative to the available time series. We study the asymptotic and small sample properties of the DSUR estimator for both heterogeneous and homogeneous cointegrating vectors. We then apply the method to analyse two long-standing problems in international economics. Our first application revisits the estimation of long-run correlations between national investment and national saving. Our second application revisits the question of whether the forward exchange rate is an unbiased predictor of the future spot rate. Copyright The Review of Economic Studies Limited, 2005.

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