Explain the conditions under which the excess sensitivity, Econometrics

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Explain the conditions under which the excess sensitivity

Consider the stochastic permanent income hypothesis model studied in Section 16.5 with a general instantaneous utility function u(c). Explain the conditions under which the excess sensitivity tests described in that section would fail even when the stochastic Euler equation (16.26) holds. [Hint: you may want to consider the CRRA preferences for concreteness.]

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Econometrics: Explain the conditions under which the excess sensitivity

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