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Original Articles

Cross-variable restrictions in Euler equations and risk premia

Pages 99-101 | Published online: 06 Oct 2010
 

Abstract

The paper argues that all restrictions beween variables in Euler equations should be taken into account when estimating them. If this is not done, the volatility of the marginal rate of substitution is overstated. This is shown in context of two models in which it is crucial to use restriction between consumption and wealth.

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