Estimating the elasticity of intertemporal substitution when instruments are weak

• 成果类型: Article
• 署名作者: Yogo, M
• 署名单位: Harvard University
• 刊物名称: REVIEW OF ECONOMICS AND STATISTICS
• ISSN/ISSBN: 0034-6535
• DOI: 10.1162/0034653041811770
• 发表日期: 2004-08
• 页码: 797-810
• 关键词: risk-aversion; temporal behavior; asset returns; variables regression; sample properties; consumption; identification; models; gmm

摘要

In the instrumental variables (IV) regression model, weak instruments can lead to bias in estimators and size distortion in hypothesis tests. This paper examines how weak instruments affect the identification of the elasticity of intertemporal substitution (EIS) through the linearized Euler equation. Conventional IV methods result in an empirical puzzle that the EIS is significantly less than I but its reciprocal is not different from 1. This paper shows that weak instruments can explain the puzzle and reports valid confidence intervals for the EIS using pivotal statistics. The EIS is less than 1 and not significantly different from 0 for eleven developed countries.