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Using Indirect Inference To Solve The Initial-Conditions Problem

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  • Mark Yuying An
  • Ming Liu

Abstract

In this paper, we study the initial-conditions problem, a complication associated with left-censored or interrupted spells in the econometric analysis of labor market transitions. In the presence of unobserved individual-specific heterogeneity, no consistent estimators have been previously constructed. This paper proposes such an estimator using indirect inference (II). The II procedure simulates the structural model and "matches" the simulated data with the actual data via the implementation of an informative auxiliary model. Consistency and asymptotic normality of the II estimator are proved. Monte Carlo experiments as well as a real data set are used to illustrate the small-sample performance of the II estimator. These results show that the II estimator is insensitive to the alternative auxiliary models chosen for the II estimation. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 82 (2000)
Issue (Month): 4 (November)
Pages: 656-667

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Handle: RePEc:tpr:restat:v:82:y:2000:i:4:p:656-667

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Cited by:
  1. Martin Browning & Mette Ejrnaes, 2006. "Modelling income processes with lots of heterogeneity," Economics Series Working Papers, University of Oxford, Department of Economics 285, University of Oxford, Department of Economics.
  2. Anna Gottard & Giorgio Calzolari, 2014. "Alternative estimating procedures for multiple membership logit models with mixed effects: indirect inference and data cloning," Econometrics Working Papers Archive, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti" 2014_07, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
  3. Akay, Alpaslan, 2007. "Monte Carlo Investigation of the Initial Values Problem in Censored Dynamic Random-Effects Panel Data Models," Working Papers in Economics, University of Gothenburg, Department of Economics 278, University of Gothenburg, Department of Economics.
  4. Li, Tong, 2010. "Indirect inference in structural econometric models," Journal of Econometrics, Elsevier, Elsevier, vol. 157(1), pages 120-128, July.

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