Nonparametric Euler equation identification and estimation

Juan Carlos Escanciano, Stefan Hoderlein, Arthur Lewbel, Oliver Linton and Sorawoot Srisuma

No 61/15, CeMMAP working papers from Institute for Fiscal Studies

Abstract: We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations. Ours is the first paper to prove nonparametric identification of Euler equations under low level conditions (without imposing functional restrictions or just assuming completeness). We also propose a novel nonparametric estimator based on our identification analysis, which combines standard kernel estimation with the computation of a matrix eigenvector problem. Our estimator avoids the ill-posed inverse issues associated with existing nonparametric instrumental variables based Euler equation estimators. We derive limiting distributions for our estimator and for relevant associated functionals. We provide a Monte Carlo analysis and an empirical application to US household-level consumption data.

Date: 2015-10-01
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Related works:
Journal Article: NONPARAMETRIC EULER EQUATION IDENTIFICATION AND ESTIMATION (2021)
Working Paper: Nonparametric Euler Equation Identification and Estimation (2020)
Working Paper: Nonparametric Euler Equation Identi?cation and Estimation (2020)
Working Paper: Nonparametric Euler Equation Identification andEstimation (2015)
Working Paper: Nonparametric Euler equation identification and estimation (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:61/15

DOI: 10.1920/wp.cem.2015.6115

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