Identification Robust Empirical Evidence on the Open Economy IS‐Curve

Existing empirical evidence on the Euler equation based closed economy models suggests low responsiveness of aggregate consumption to changes in interest rates. We incorporate open features and consider extensions that include habit formation hand-to-mouth consumers. For several economies applying econometric methods are robust weak instruments structural changes, we continue find values for elasticity intertemporal substitution, implying a small effect real rate income. In some countries, informative identification, but otherwise data provide limited information learn about IS-curve specifications.