We find that dynamically consistent (exponential) impatience cannot explain the magnitude of the decline. The model needs either an implausibly large degree of annual impatience, or a very large intertemporal elasticity of substitution. Intuitively, the problem arises because the exponential discount rate is constant over time:1 even a mild degree of short-run discounting, say a daily discount rate of 1 percent, implies a daily discount factor of and thus an annual discount factor of = . This is far below estimates of annual discounting in the literature, and implies that the consumer values consumption today 97 percent more than consumption in one year, which seems highly.
