The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Euler Equations

  • Jonathan A. Parker
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2161

Abstract

An Euler equation is a difference or differential equation that is an intertemporal first-order condition for a dynamic choice problem. It describes the evolution of economic variables along an optimal path. It is a necessary but not sufficient condition for a candidate optimal path, and so is useful for partially characterizing the theoretical implications of a range of models for dynamic behaviour. In models with uncertainty, expectational Euler equations are conditions on moments, and thus directly provide a basis for testing models and estimating model parameters using observed dynamic behaviour.

Keywords

Calculus of variations Continuous-time models Differential equations Discrete-time models Dynamic programming Euler equations Expectations Generalized method of moments Lagrange multipliers Liquidity constraints Optimal control Precautionary saving Ramsey model Shadow pricing Uncertainty 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Jonathan A. Parker
    • 1
  1. 1.