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Estimating a Consumption-Based Asset Pricing Model

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Frequent Contributor
Posts: 118

Estimating a Consumption-Based Asset Pricing Model

Can someome explain this example:

SAS/ETS Examples -- Estimating a Consumption-Based Asset Pricing Model

title 'Consumption-Based Asset Pricing Model';

proc model data=harvey;

   endogenous conrat;

   exogenous gb cb d1 d10 ;

   parms beta 1.0 alpha 1.0;

/* set up lags for use as instruments */

   lc1 = lag(cinst);

   lc2 = lag2(cinst);

   lc3 = lag3(cinst);

   lc4 = lag4(cinst);

   ltb1 = lag(rinst);

   ltb2 = lag2(rinst);

   ltb3 = lag3(rinst);

   ltb4 = lag4(rinst);

/* moment conditions */

   eq.h1 = beta * (1+conrat)**(-alpha) * (1+gb) - 1 ;

   eq.h2 = beta * (1+conrat)**(-alpha) * (1+cb) - 1 ;

   eq.h3 = beta * (1+conrat)**(-alpha) * (1+d1) - 1 ;

   eq.h4 = beta * (1+conrat)**(-alpha) * (1+d10) - 1 ;

   fit h1-h4 / itgmm kernel=(parzen,1,0);

   instruments lc1-lc4 ltb1-ltb4 ;

ods output  ParameterEstimates=parms_estimate;

run;

quit;

SAS Employee
Posts: 89

Re: Estimating a Consumption-Based Asset Pricing Model

Beyond the example itself, what would you like explained?  I would refer you to the references for the theoretical underpinning.

The model itself is ITGMM which is a method of consistently estimating parameters in the presence of endogenous regressors.  Watch this video for an explanation.

What is Generalized Method of Moments? by Alastair Hall - YouTube

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