02157cam a22002537 4500001000600000003000500006005001700011008004100028100002800069245016700097260006600264490004100330500001900371520087000390530006101260538007201321538003601393690013901429690014401568710004201712830007601754856003701830856003601867w6298NBER20170723195608.0170723s1997 mau||||fs|||| 000 0 eng d1 aCarroll, Christopher D.10aDeath to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)h[electronic resource] /cChristopher D. Carroll. aCambridge, Mass.bNational Bureau of Economic Researchc1997.1 aNBER working paper seriesvno. w6298 aDecember 1997.3 aThis paper shows that standard empirical methods for estimating log-linearized consumption Euler equations cannot successfully uncover structural parameters like the coefficient of relative risk aversion from the dataset of simulated consumers behaving exactly according to the standard model. Furthermore, consumption growth for the simulated consumers is very highly statistically related to predictable income growth - and thus standard 'excess sensitivity' tests would reject the hypothesis that consumers are behaving according to the standard model. Results are not much better for the second-order approximation to the Euler equation. The paper concludes that empirical estimation of consumption Euler equations should not be abandoned, and discusses some alternative empirical strategies that are not subject to the problems of Euler equation estimation. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aC6 - Mathematical Methods • Programming Models • Mathematical and Simulation Modeling2Journal of Economic Literature class. 7aD91 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making2Journal of Economic Literature class.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w6298.4 uhttp://www.nber.org/papers/w629841uhttp://dx.doi.org/10.3386/w6298