A cointegration approach to estimating preference parameters

Masao Ogaki, Joon Y. Park

Research output: Contribution to journalArticle

59 Citations (Scopus)

Abstract

In this paper, we estimate the (long-run) intertemporal elasticity of substitution of non-durable consumption, which has often been estimated with the generalized methods of moments (GMM). The GMM estimator, however, is not consistent in the presence of liquidity constraints, aggregation over heterogeneous consumers, unknown preference shocks, or a general form of time-nonseparability. We use Engle and Granger's cointegration methodology in order to develop an estimator which is consistent even in the presence of these factors. We then form a formal test that compares the estimates obtained using cointegration techniques with those obtained using GMM.

Original languageEnglish
Pages (from-to)107-134
Number of pages28
JournalJournal of Econometrics
Volume82
Issue number1
DOIs
Publication statusPublished - 1998 Jan
Externally publishedYes

Keywords

  • Consumption-based asset pricing
  • Intertemporal elasticity of substitution

ASJC Scopus subject areas

  • Economics and Econometrics

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