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A note on Measurement Error and Euler Equations: an Alternative to Log-Linear Approximations

Eva Ventura
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Eva Ventura: UPF

General Economics and Teaching from University Library of Munich, Germany

Abstract: Empirical research based on panel data has to pay special attention to measurement errors. Utility maximization often yields nonlinear decision rules in which measurement errors enter in a multiplicative way. The usual strategy to deal with them consists of taking log-linear approximations of the equations to estímate. The expression to be estimated then includes a new error component and the estimators could be biased and inconsistent. We describe one particular parameterization that avoids linearizing the equation we want to estimate.

Keywords: Panel; Euler equations; Measurement error; GMM (search for similar items in EconPapers)
JEL-codes: C23 C51 D12 (search for similar items in EconPapers)
Date: 2003-12-15
Note: Type of Document - pdf; prepared on win2000; to print on Hewlett Packard Laserjet; pages: 7; figures: 0. UPF Working Paper # 31 Newer version published in Economics Letters
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