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Integrating Structural and Reduced-Form Methods in Empirical Finance

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  • Toni M. Whited

Abstract

I discuss various ways in which inference based on the estimation of the parameters of statistical models (reduced-form estimation) can be combined with inference based on the estimation of the parameters of economic models (structural estimation). I discuss five basic categories of integration: directly combining the two methods, using statistical models to simplify structural estimation, using structural estimation to extend the validity of reduced-form results, using reduced-form techniques to assess the external validity of structural estimations, and using structural estimation as a sample selection remedy. I illustrate each of these methods with examples from corporate finance, banking, and personal finance.

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  • Toni M. Whited, 2022. "Integrating Structural and Reduced-Form Methods in Empirical Finance," Papers 2205.01175, arXiv.org.
    • Handle: RePEc:arx:papers:2205.01175
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