*Macroeconomic Dynamics*,** 4**, 2000,
547-572

Separability, Aggregation, and Euler Equation Estimation

**ADRIAN R. FLEISSIG**

California State University at Fullertion

**A. RONALD GALLANT**

University of North Carolina

**JOHN J. SEATER**

North Carolina State University

We derive a seminonparametric utility function containing the constant relative risk aversion (CRRA) function as a special case, and we estimate the associated Euler equations with U.S. consumption data. There is strong evidence that the CRRA function is misspecified. The correctly specified function includes lagged effects of durable goods and perhaps nondurable goods, is bounded as required by Arrow's Utility Boundedness Theorem, and has a postitive rate of time preference. Constraining sample periods and separability structure to be consistent with the generalized axiom of revealed preference affects estimation results substantially. Using Divisia aggregates instead of the NIPA aggregates also affects results.

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Keywords: Euler Equations, Separability, Aggregation
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