Estimation of Discount Factor ß and Coefficient of Relative Risk Aversion ? in Selected Countries

The long-run discount factor for a group of developed and developing countries is estimated through standard methodology incorporating adaptive expectations of inflation. In the second part, while considering a standard Euler equation for household's intertemporal consumption, the parameter of constant relative risk aversion (CRRA) for Pakistan is estimated by using the Generalized Method of Moments (GMM) approach. The resulting parameter value of CRRA conforms to the empirical range for developing countries (as given in, Cardenas and Carpenter, 2008) The GMM estimator for the discount factor reinforces its result from the first part of the paper. [SBP WP no. 53]. URL:[http://www.sbp.org.pk/publications/wpapers/2012/wp53.pdf].