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

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  • Eva Ventura

    (UPF)

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.

Suggested Citation

  • Eva Ventura, 2003. "A note on Measurement Error and Euler Equations: an Alternative to Log-Linear Approximations," General Economics and Teaching 0312004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpgt:0312004
    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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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Panel; Euler equations; Measurement error; GMM;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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