Identification robust empirical evidence on the Euler equation in open economies

Qazi Haque and Leandro Magnusson

No 20-01, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

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.

JEL-codes: C1 C2 E1 F4 (search for similar items in EconPapers)
Pages: 31
Date: 2020
New Economics Papers: this item is included in nep-mac and nep-ore
Note: MD5 = c3f24811f345cf7628eef36616f5da70
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Citations: View citations in EconPapers (1)

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Working Paper: Identification robust empirical evidence on the Euler equation in open economies (2020)
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