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The Euler Equation with Habits and Measurement Errors: Estimates on Russian Micro Data

Irina Khvostova Author-Email: and Anna Novak ()
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Irina Khvostova Author-Email: National Research University, Higher School of Economics, Russia Author-Name: Alexander Larin Author-Email:

Panoeconomicus, 2016, vol. 63, issue 4, 395-409

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 pres- ence 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 equilibri- um (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.

Keywords: Household consumption; Euler equation; Habit formation; Elastici- ty of intertemporal substitution; RLMS-HSE. (search for similar items in EconPapers)
JEL-codes: C23 E21 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:voj:journl:v:63:y:2016:i:4:p:395-409