This paper reviews recently developed simulation-based minimum chi-square estimators for structural models. Particular attention is paid to selection of the auxiliary model that defines the GMM-type criterion used in the minimum chi-square estimation. Considerations of statistical efficiency and behavior under misspecification make a strong case for using a very flexible, nonparametric approach to select the auxiliary model. To avoid a numerically ill-behaved GMM criterion function, the dynamic stability of the auxiliary model must also be verified, though, interestly, the dynamic stability of the structural model itself is automatically enforced and need not be imposed in estimation. The empirical application involves estimation of a single-fator diffusion model for the 30-day Eurodollar interest rate.
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Paper provided by Duke University, Department of Economics in its series Working Papers with number
95-42.
Length: Date of creation: 1995 Date of revision: Publication status: Published in ADVANCES IN ECONOMICS AND ECONOMETRICS: THEORY AND APPLICATIONS, Vol. III, Econometric Society Monographs No. 28, David M. Kreps and Kenneth F. Wallis (eds.), Cambridge University Press, 1997, pages 279-317 Handle: RePEc:duk:dukeec:95-42
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