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.
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Parker, J.A. (2018). Euler Equations. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2161
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2161
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Online ISBN: 978-1-349-95189-5
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