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Estimating Euler equations with noisy data: two exact GMM estimators

Alan, Sule and Attanasio, Orazio and Browning, Martin (2009) 'Estimating Euler equations with noisy data: two exact GMM estimators.' Journal of Applied Econometrics, 24 (2). pp. 309-324. ISSN 0883-7252

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In this paper we exploit the specific structure of the Euler equation and develop two alternative GMM estimators that deal explicitly with measurement error. The first estimator assumes that the measurement error is log-normally distributed. The second estimator drops the distributional assumption at the cost of less precision. Our Monte Carlo results suggest that both proposed estimators perform much better than conventional alternatives based on the exact Euler equation or its log-linear approximation, especially with short panels. An empirical application to the PSID yields plausible and precise estimates of the coefficient of relative risk aversion and the discount rate. © 2008 John Wiley & Sons, Ltd.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 04 Sep 2013 10:00
Last Modified: 15 Jan 2022 01:06

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