The moment restrictions for the durable consumption model with recursive utility revisited

Masakatsu Okubo

Finance Research Letters, 2023, vol. 52, issue C

Abstract: A key assumption behind the moment restrictions for the durable consumption model with recursive utility is that a condition called normalization holds for the intertemporal marginal rate of substitution. This paper points out that one of the moment restrictions used in the literature is inconsistent with the assumption that this condition and the first-order conditions hold simultaneously. It shows that a two-step estimation procedure can avoid this issue. The method is illustrated with US data.

Keywords: Durable good; Euler equation; Moment restriction; Nonseparable utility (search for similar items in EconPapers)
JEL-codes: C32 E21 G11 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322006304

DOI: 10.1016/j.frl.2022.103453

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