Question

# Predetermined and endogenous variables in the Euler investment model?

Hello, I am using the Euler investment model on a panel of firm level data. My question is about identifying the predetermined and endogenous variables in the model since I am using system GMM for estimation. Independent vars I am considering are (lagged dep var, lagged squared dep var, cash flow to capital stock, sales to capital stock, debt to capital stock).
Many thanks for help

8th Nov, 2015
Er Sir Dr Soumitra Kumar Mallick
IISWBM; ResearchGate RHMHM Sch
The problem you are asking about is not as easy as it sounds. You can take a look at some of my papers on the RG webpage particularly the ones on Mathematical Statistical Stock Market pricing in emerging economies and the String Theoretic paper on Political Environment. It shows that simultaneous equations of DGE cannot be estimated by using GMM on panel data with Stock Markets unless you use Systems Classification and Systems Integration with a factor structure for Stock Market Asset Returns. The Euler equations are not equipped enough to handle this. So it seems to me you have to use structural models even if you use the GMM method. I hope this is of some help. SKM QC FEPS
13th Nov, 2015
Victor Peirone
Japan Bank for International Cooperation
From the financial acceleration point of view you should add profits to capital stocks and a proxy of financial cost (interest rate, etc.).
I used GMM in my thesis including also tax variables. In my case focused on the affects of taxation over capex.

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