Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162317
Authors: 
Grammig, Joachim
Küchlin, Eva-Maria
Year of Publication: 
2017
Series/Report no.: 
CFR Working Paper 17-01
Abstract: 
The long-run consumption risk model provides a theoretically appealing explanation for prominent asset pricing puzzles, but its intricate structure presents a challenge for econometric analysis. This paper proposes a two-step indirect inference approach that disentangles the estimation of the model's macroeconomic dynamics and the investor's preference parameters. A Monte Carlo study explores the feasibility and efficiency of the estimation strategy. We apply the method to recent U.S. data and provide a critical re-assessment of the long-run risk model's ability to reconcile the real economy and financial markets. This two-step indirect inference approach is potentially useful for the econometric analysis of other prominent consumption-based asset pricing models that are equally difficult to estimate.
Subjects: 
indirect inference estimation
asset pricing
longrun risk
JEL: 
C58
G10
G12
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.