handoutgmmsp06 - Estimating Deep Parameters and Testing...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Estimating Deep Parameters and Testing Necessary Conditions via GMM Consider applying this technique to the Lucas (1978) representative agent asset pricing framework with preferences U ( c t )= c 1 ψ t 1 1 ψ (actually what Hansen and Singleton (1982) did). The f rst order necessary conditions are given by p t c ψ t = E t βc ψ t +1 ( p t +1 + y t +1 )( 1 ) ⇐⇒ E t " β μ c t c t +1 ψ μ p t +1 + y t +1 p t 1 # =0 We can rewrite (1) in terms of errors u t +1 ( b 0 ) h ( x t +1 ,b 0 )= β μ c t c t +1 ψ μ p t +1 + y t +1 p t 1 where b 0 stands in for the true parameters ( β,ψ ) ,x t +1 is a k × 1vector of variables observed by agents as of t +1 (e .g . { c n ,y n ,p n } t +1 n =0 )and we assume that u t +1 ( b 0 )has f nite second moments (this is necessary for stationarity). In general, u t +1 ( b 0 )maybean m × 1 vector and b 0 may be an C × 1vector .
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/06/2008 for the course ECON 387 taught by Professor Corbae during the Spring '07 term at University of Texas.

Page1 / 2

handoutgmmsp06 - Estimating Deep Parameters and Testing...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online