Identification robust empirical evidence on the Euler equation in open economies

We investigate the empirical evidence on the Euler equation models using methods that
are robust to weak instruments and structural changes for a set of eight countries. We
start with the conventional closed economy model and consider extensions that include
habits and hand-to-mouth consumers. We then extend the analysis to allow for each
country to behave like an open economy. We find that structural changes are informative
for the identification of the Euler equation models in some countries. However, in all
countries, there is limited responsiveness of output to changes in the interest rate and no
evidence of parameter instability, but otherwise aggregate data provide limited
information to learn about Euler equation models.