Identification robust empirical evidence on the Euler equation in open economies

Qazi Haque and Leandro Magnusson

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We investigate the empirical evidence on the Euler equation models using methods that are robust to weak instruments and structural changes for a set of eight countries. We start with the conventional closed economy model and consider extensions that include habits and hand-to-mouth consumers. We then extend the analysis to allow for each country to behave like an open economy. We find that structural changes are informative for the identification of the Euler equation models in some countries. However, in all countries, there is limited responsiveness of output to changes in the interest rate and no evidence of parameter instability, but otherwise aggregate data provide limited information to learn about Euler equation models.

Keywords: Euler equation; Weak identification; Open economy (search for similar items in EconPapers)
JEL-codes: C1 C2 E1 F4 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-02
New Economics Papers: this item is included in nep-mac and nep-ore
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Identification robust empirical evidence on the Euler equation in open economies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-07

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