02348cam a22002537 4500001000600000003000500006005001700011008004100028100002100069245012800090260006600218490005100284500001900335520126500354530006101619538007201680538003601752690008501788700002001873710004201893830008601935856003702021856003602058t0031NBER20191016010928.0191016s1983 mau||||fs|||| 000 0 eng d1 aGarber, Peter M.10aDeep Structral Excavation? A Critique of Euler Equation Methodsh[electronic resource] /cPeter M. Garber, Robert G. King. aCambridge, Mass.bNational Bureau of Economic Researchc1983.1 aNBER technical working paper seriesvno. t0031 aNovember 1983.3 aRational expectations theory instructs empirical researchers to uncover the values of 'deep' structural parameters of preferences and technology rather than the parameters of decision rules that confound these structural parameters with those of forecasting equations. This paper reevaluates one method of identifying and estimating such deep parameters, recently advanced by Hansen and Singleton, that uses intertemporal efficiency expressions (Euler equations) and basic properties of expectations to produce orthogonality conditions that permit parameter estimation and hypothesis testing. These methods promise the applied researcher substantial freedom, as it is apparently not necessary to specify the details of dynamic general equilibrium to study the behavior of a particular market participant. In this paper, we demonstrate that this freedom is illusory. That is, if there are shifts in agents' objectives which are not directly observed by the econometrician, then Euler equation methods encounter serious identification and estimation difficulties. For these difficulties to be overcome the econometrician must have prior knowledge concerning variables that are exogenous to the agent under study, as in conventional simultaneous equations theory. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aC - Mathematical and Quantitative Methods2Journal of Economic Literature class.1 aKing, Robert G.2 aNational Bureau of Economic Research. 0aTechnical Working Paper Series (National Bureau of Economic Research)vno. t0031.4 uhttp://www.nber.org/papers/t003141uhttp://dx.doi.org/10.3386/t0031