Identification Robust Empirical Evidence on the Euler Equation in Open Economies

32 Pages Posted: 11 Feb 2020

See all articles by Qazi Haque

Qazi Haque

The University of Western Australia

Leandro M. Magnusson

University of Western Australia

Date Written: January 30, 2020

Abstract

We investigate the empirical evidence on the Euler equation models using methods that are robust to weak instruments and structural changes for a set of eight countries. We start with the conventional closed economy model and consider extensions that include habits and hand-to-mouth consumers. We then extend the analysis to allow for each country to behave like an open economy. We find that structural changes are informative for the identification of the Euler equation models in some countries. However, in all countries, there is limited responsiveness of output to changes in the interest rate and no evidence of parameter instability, but otherwise aggregate data provide limited information to learn about Euler equation models.

Keywords: Euler equation, Weak identification, Open economy

JEL Classification: C1, C2, E1, F4

Suggested Citation

Haque, Qazi and Magnusson, Leandro M., Identification Robust Empirical Evidence on the Euler Equation in Open Economies (January 30, 2020). CAMA Working Paper No. 7/2020, Available at SSRN: https://ssrn.com/abstract=3535215 or http://dx.doi.org/10.2139/ssrn.3535215

Qazi Haque (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Leandro M. Magnusson

University of Western Australia ( email )

35 Stirling Highway, M251
Crawley, WA 6009
Australia
+61 8 6488 2924 (Phone)
+61 8 6488 1016 (Fax)

HOME PAGE: http://www.uwa.edu.au/people/Leandro.Magnusson

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