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- Title
The Euler Equation with Habits and Measurement Errors: Estimates on Russian Micro Data.
- Authors
Khvostova, Irina; Larin, Alexander; Novak, Anna
- Abstract
This paper presents estimates of the consumption Euler equation for Russia. The estimation is based on micro-level panel data and accounts for the heterogeneity of agents' preferences and measurement errors. The presence of multiplicative habits is checked using the Lagrange multiplier (LM) test in a generalized method of moments (GMM) framework. We obtain estimates of the elasticity of intertemporal substitution and of the subjective discount factor, which are consistent with the theoretical model and can be used for the calibration and the Bayesian estimation of dynamic stochastic general equilibrium (DSGE) models for the Russian economy. We also show that the effects of habit formation are not significant. The hypotheses of multiplicative habits (external, internal, and both external and internal) are not supported by the data.
- Subjects
EULER equations; MEASUREMENT errors; PANEL analysis; LAGRANGE multiplier; GENERALIZED method of moments
- Publication
Panoeconomicus, 2016, Vol 63, Issue 4, p395
- ISSN
1452-595X
- Publication type
Article
- DOI
10.2298/PAN1604395K