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Estimation of Discount Factor ß and Coefficient of Relative Risk Aversion ? in Selected Countries

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  • Waqas Ahmed

    ()

  • Adnan Haider

    ()

  • Javed Iqbal

    ()

Abstract

The long-run discount factor for a group of developed and developing countries is estimated through standard methodology incorporating adaptive expectations of inflation. In the second part, while considering a standard Euler equation for household's intertemporal consumption, the parameter of constant relative risk aversion (CRRA) for Pakistan is estimated by using the Generalized Method of Moments (GMM) approach. The resulting parameter value of CRRA conforms 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. [SBP WP no. 53]. URL:[http://www.sbp.org.pk/publications/wpapers/2012/wp53.pdf].

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:5087.

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Date of creation: Aug 2012
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Handle: RePEc:ess:wpaper:id:5087

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Keywords: Discount Factor; relative risk; economics; future returns;

References

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  7. Sule Alan & Martin Browning, 2003. "Estimating Intertemporal Allocation Parameters using Simulated Residual Estimation," CAM Working Papers, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics 2003-03, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  8. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(3), pages 262-80, July.
  9. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
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  11. Jordi Galí, 2008. "Monetary Policy and the Open Economy
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  12. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 2(1), pages 7-46, May.
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  15. Pozzi, Lorenzo, 2003. "The coefficient of relative risk aversion: a Monte Carlo study investigating small sample estimator problems," Economic Modelling, Elsevier, Elsevier, vol. 20(5), pages 923-940, September.
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Cited by:
  1. Ahmed, Waqas, 2012. "Pakistan Economy DSGE Model with Informality-The Empirics of Calibration," MPRA Paper, University Library of Munich, Germany 53167, University Library of Munich, Germany.
  2. Haider, Adnan & Din, Musleh-ud & Ghani, Ejaz, 2012. "Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks," MPRA Paper, University Library of Munich, Germany 42484, University Library of Munich, Germany.
  3. Haider, Adnan & Jan, Asad & Hyder, Kalim, 2012. "On the (IR) Relevance of Monetary Aggregate Targeting in Pakistan: An Eclectic View," MPRA Paper, University Library of Munich, Germany 43422, University Library of Munich, Germany.

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