Analytic Derivatives for Estimation of Linear Dynamic Models
AbstractThis paper develops two algorithms. Algorithm I computes the exact, Gaussian, log-likelihood function, its exact, gradient vector, and an asymptotic approximation of its Hessian matrix, for discrete-time, linear, dynamic models in state-space form. Algorithm 2, derived from algorithm I, computes the exact, sample, information matrix of this likelihood function. The computed quantities are analytic (not numerical approximations) and should, therefore, be useful for reliably, quickly, and accurately: (i) checking local identifiability of parameters by checking the rank of the information matrix; (ii) using the gradient vector and Hessian matrix to compute maximum likelihood estimates of parameters with Newton methods; and, (iii) computing asymptotic covariances (Cramer-Rao bounds) of the parameter estimates with the Hessian or the information matrix. The principal contribution of the paper is algorithm 2, which extends to multivariate models the univariate results of Porat and Friedlander (1986). By relying on the Kalman filter instead of the Levinson-Durbin filter used by Porat and Friedlander, algorithms 1 and 2 can automatically handle any pattern of missing or linearly aggregated data. Although algorithm 1 is well known, it is treated in detail in order to make the paper self contained.
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Bibliographic InfoPaper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 88-5.
Date of creation: Nov 1988
Date of revision:
CES; economic; research; micro; data; microdata; chief; economist; dynamics models;
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- Nikolay Iskrev, 2013. "On the distribution of information in the moment structure of DSGE models," 2013 Meeting Papers, Society for Economic Dynamics 339, Society for Economic Dynamics.
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