The Walking Dead Euler equation, Addressing a challenge to monetary policy models

see my PhD dissertation, light version published as Insee working paperPoster presented at the 2015 EEA Congress.

Despite some strong cases built against it, the Euler equation on consumption remains a cornerstone of monetary policy models. In this paper I test the representative household’s consumption-savings trade-off in two original directions. I first use households’ specific interest rates for both US and France. These rates have a better explanatory power of the representative consumer’s behaviour than the monetary policy rate. I also use a less restrictive approach to measure households’ expectations based on survey data. However, the challenge posed by the Euler equation to monetary policy models remains.

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