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Structural estimation of continuous choice models: Evaluating the EGM and MPEC

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  • Jørgensen, Thomas H.

Abstract

In this paper, I evaluate the performance of two recently proposed approaches to solving and estimating structural models: The Endogenous Grid Method (EGM) and Mathematical Programming with Equilibrium Constraints (MPEC). Monte Carlo simulations confirm that both the EGM and MPEC have advantages relative to standard methods. The EGM proved particularly robust, fast and straightforward to implement. Approaches trying to avoid solving the model numerically, therefore, seem to be dominated by these approaches.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 119 (2013)
Issue (Month): 3 ()
Pages: 287-290

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Handle: RePEc:eee:ecolet:v:119:y:2013:i:3:p:287-290

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Structural estimation; Continuous choice; Endogenous Grid Method (EGM); Mathematical Programming with Equilibrium Constraints (MPEC);

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  1. Sule Alan & Orazio Attanasio & Martin Browning, 2009. "Estimating Euler equations with noisy data: two exact GMM estimators," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(2), pages 309-324, 03.
  2. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
  3. Carroll, Christopher D., 2005. "The method of endogenous gridpoints for solving dynamic stochastic optimization problems," CFS Working Paper Series 2005/18, Center for Financial Studies (CFS).
  4. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September.
  5. Che-Lin Su & Kenneth L. Judd, 2008. "Constrainted Optimization Approaches to Estimation of Structural Models," Discussion Papers 1460, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. John Rust & Bertel Schjerning & Fedor Iskhakov, 2012. "A generalized endogenous grid method for discrete-continuous choice," 2012 Meeting Papers 1162, Society for Economic Dynamics.
  7. Giulio Fella, 2011. "A generalized endogenous grid method for non-concave problems," 2011 Meeting Papers 1232, Society for Economic Dynamics.
  8. Sule Alan & Martin Browning, 2010. "Estimating Intertemporal Allocation Parameters using Synthetic Residual Estimation," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1231-1261.
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