Separability, aggregation, and euler equation estimation

Adrian R. Fleissig, A. Ronald Gallant, John J. Seater

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


We derive a seminonparametric utility function containing the constant relative risk aversion (CRRA) function as a special case, and we estimate the associated Euler equations with U.S. consumption data. There is strong evidence that the CRRA function is misspecified. The correctly specified function includes lagged effects of durable goods and perhaps nondurable goods, is bounded as required by Arrow's Utility Boundedness Theorem, and has a positive rate of time preference. Constraining sample periods and separability structure to be consistent with the generalized axiom of revealed preference affects estimation results substantially. Using Divisia aggregates instead of the NIPA aggregates also affects results.

Original languageEnglish (US)
Pages (from-to)547-572
Number of pages26
JournalMacroeconomic Dynamics
Issue number4
StatePublished - 2000

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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