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Euler equation with habits and measurement errors: estimates on Russian micro data

  • Irina Khvostova


    (National Research University Higher School of Economics)

  • Alexander Larin


    (National Research University Higher School of Economics)

  • Anna Novak


    (National Research University Higher School of Economics)

Registered author(s):

    This paper presents estimates for the consumption Euler equation for Russia. The estimation is based on micro-level panel data and accounts for the preference heterogeneity, measurement errors, and the impact of macroeconomic shocks. The presence of multiplicative habits is checked with the LM-test in a GMM framework. We obtain estimates of the elasticity of intertemporal substitution and of the subjective discount factor, which are consistent with the theoretical model and can be used for calibration, as well as for a Bayesian estimation of DSGE models for the Russian economy. We also show that the effects of habit formation are not significant. The hypotheses on habits (external, internal, and both external and internal) are not supported by the data

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    Paper provided by National Research University Higher School of Economics in its series HSE Working papers with number WP BRP 52/EC/2014.

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    Length: 32 pages
    Date of creation: 2014
    Date of revision:
    Publication status: Published in WP BRP Series: Economics / EC, February 2014, pages 1-32
    Handle: RePEc:hig:wpaper:52/ec/2014
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