The walking dead Euler equation Addressing a challenge to monetary policy models


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.

Documents de travail N° G2015/01
No G2015/01
Paru le : 22/01/2015