SHIN-ICHI NISHIYAMA*

SUMMARY
This paper addresses the empirical dilemma in identifying and estimating the parameters governing the
intertemporal elasticity of substitution (IES) for import demand. We propose a new concept, the cross-Euler
equation, for overcoming this empirical dilemma. IES parameters are estimated by exploiting the cointegrating
restriction implied by the cross-Euler equation. Further, by comparing the IES estimates from the cross-Euler
equation to those from the standard Euler equation, we test the hypothesis whether import demand is affected
by nuisance factors. Using the US data, we found imported goods consumption to be robust against nuisance
factors, but not for domestic goods. Copyright  2005 John Wiley & Sons, Ltd.