2. Suppose the following Euler equation holds: BoE Rit+1 where Rat is an interest rate person i faces in time t, U'(c) =

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2 Suppose The Following Euler Equation Holds Boe Rit 1 Where Rat Is An Interest Rate Person I Faces In Time T U C 1 (34.85 KiB) Viewed 34 times

2. Suppose the following Euler equation holds: BoE Rit+1 where Rat is an interest rate person i faces in time t, U'(c) = eo and it is a set of any variable known to individual i at time t and consists of consumption, Cu, income, Yit, and interest rate, Rit, at time t. Assume that for each person we observe (Cit, Cit+1, Yit, Rit, Rit+1). U'(Cit+1) U'(Cit) Nit =1 (a) Discuss the moment conditions you can use to estimate o and Bo. (b) Discuss the generalized method of moment objective function for estimating %0 and Bo (c) Discuss the optimal generalized method of moment estimation of 20 and Bo. (d) Discuss how you will construct the 95% confidence interval for %o. Be specific about the way you define the asymptotic variance-covariance matrix and how you will estimate it. (e) Discuss how you can test the over-identifying restrictions.