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Estimation of dynamic latent variable models using simulated non‐parametric moments

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  • Michael Creel
  • Dennis Kristensen

Abstract

Abstract. Given a model that can be simulated, conditional moments at a trial parameter value can be calculated with high accuracy by applying kernel smoothing methods to a long simulation. With such conditional moments in hand, standard method of moments techniques can be used to estimate the parameter. Because conditional moments are calculated using kernel smoothing rather than simple averaging, it is not necessary that the model be simulable subject to the conditioning information that is used to define the moment conditions. For this reason, the proposed estimator is applicable to general dynamic latent variable models. It is shown that as the number of simulations diverges, the estimator is consistent and a higher-order expansion reveals the stochastic difference between the infeasible GMM estimator based on the same moment conditions and the simulated version. In particular, we show how to adjust standard errors to account for the simulations. Monte Carlo results show how the estimator may be applied to a range of dynamic latent variable (DLV) models, and that it performs well in comparison to several other estimators that have been proposed for DLV models.

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Bibliographic Info

Article provided by Royal Economic Society in its journal Econometrics Journal.

Volume (Year): 15 (2012)
Issue (Month): 3 (October)
Pages: 490-515

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Handle: RePEc:wly:emjrnl:v:15:y:2012:i:3:p:490-515

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References

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Citations

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Cited by:
  1. Dennis Kristensen & Bernard Salanie, 2010. "Higher Order Improvements for Approximate Estimators," Discussion Papers, Columbia University, Department of Economics 0910-15, Columbia University, Department of Economics.
  2. Tierney, Heather L.R., 2009. "A Local Examination for Persistence in Exclusions-from-Core Measures of Inflation Using Real-Time Data," MPRA Paper 13383, University Library of Munich, Germany, revised 03 Feb 2009.
  3. Michael Creel & Dennis Kristensen, 2013. "Indirect Likelihood Inference (revised)," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 931.13, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Heather L. R. Tierney, 2012. "Examining the ability of core inflation to capture the overall trend of total inflation," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 44(4), pages 493-514, February.
  5. Creel, Michael & Kristensen, Dennis, 2011. "Indirect Likelihood Inference," Dynare Working Papers 8, CEPREMAP.
  6. Dennis Kristensen & Bernard Salanie, 2013. "Higher-order properties of approximate estimators," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP45/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  7. Kristensen, Dennis & Shin, Yongseok, 2012. "Estimation of dynamic models with nonparametric simulated maximum likelihood," Journal of Econometrics, Elsevier, Elsevier, vol. 167(1), pages 76-94.
  8. Tierney, Heather L.R., 2009. "Evaluating Exclusion-from-Core Measures of Inflation using Real-Time Data," MPRA Paper 17856, University Library of Munich, Germany.

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