Changes in the output Euler equation and asset markets participation

Details

Serval ID
serval:BIB_A1852B97D1FB
Type
Article: article from journal or magazin.
Collection
Publications
Title
Changes in the output Euler equation and asset markets participation
Journal
Journal of Economic Dynamics and Control
Author(s)
Bilbiie F.O., Straub R.
ISSN
0165-1889
Publication state
Published
Issued date
11/2012
Peer-reviewed
Oui
Volume
36
Number
11
Pages
1659-1672
Language
english
Abstract
Recent estimates of the output Euler equation for the United States indicate that the elasticity of aggregate demand to interest rates is not significantly different from zero. We first argue that this result may hide a structural break: the estimated elasticity is a convolution of two coefficients with opposite signs across the samples 1965–1979 and 1982–2003. The sign of the coefficient in the earlier sample is inconsistent with standard economic theory and intuition. We outline a model with limited asset markets participation that can generate this change in sign when asset market participation changes from low to high, and provide institutional evidence for such a change in the United States in the late 1970s and early 1980s.
Keywords
IS curve, Euler equation for output, limited asset markets participation, aggregate demand.
Web of science
Create date
01/11/2018 8:50
Last modification date
20/08/2019 15:07
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