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Nonparametric Euler Equation Identification and Estimation

Escanciano, Juan Carlos, Hoderlein, Stefan, Lewbel, Arthur, Linton, Oliver and Srisuma, Sorawoot (2020) Nonparametric Euler Equation Identification and Estimation Economic Theory.

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We consider nonparametric identification and estimation of pricing kernels, or equivalently of marginal utility functions up to scale, in consumption based asset pricing Euler equations. Ours is the first paper to prove nonparametric identification of Euler equations under low level condi- tions (without imposing functional restrictions or just assuming completeness). We also propose a novel nonparametric estimator based on our identification analysis, which combines standard kernel estimation with the computation of a matrix eigenvector problem. Our estimator avoids the ill-posed inverse issues associated with nonparametric instrumental variables estimators. We derive limiting distributions for our estimator and for relevant associated functionals. A Monte Carlo shows a satisfactory finite sample performance for our estimators.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Escanciano, Juan Carlos
Hoderlein, Stefan
Lewbel, Arthur
Linton, Oliver
Date : 4 July 2020
Depositing User : James Marshall
Date Deposited : 06 Jul 2020 10:29
Last Modified : 06 Jul 2020 10:29

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