Estimation of discount factor (beta) and coefficient of relative risk aversion (gamma) in selected countries
Adnan Haider and
Javed Iqbal ()
MPRA Paper from University Library of Munich, Germany
We estimate the long-run discount factor for a group of developed and developing countries through standard methodology incorporating adaptive expectations of inflation. We find that the discount factor of developing countries is relatively nearer to unity as compared to that of the developed countries. In the second part, while considering a standard Euler equation for household's intertemporal consumption, we estimate the parameter of constant relative risk aversion (CRRA) for Pakistan by using the Generalized Method of Moments (GMM) approach. The resulting parameter value of CRRA confirms to the empirical range for developing countries (as given in, Cardenas and Carpenter, 2008). The GMM estimator for the discount factor reinforces its result from the first part of the paper. Consequently we show that different combination values for both the parameters result in different (in terms of magnitude) impulse response functions, in response to tight monetary policy shocks in a simple New Keynesian macroeconomic model.
Keywords: Discount Factor; Risk Aversion; Euler Equation; GMM (search for similar items in EconPapers)
JEL-codes: C13 D91 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/39736/1/MPRA_paper_39736.pdf original version (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:39736
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().