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The Devil is in the Detail: Hints for Practical Optimisation

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  • T M Christensen

    ()
    (QUT)

  • A S Hurn

    ()
    (QUT)

  • K A Lindsay

    ()
    (University of Glasgow)

Abstract

Finding the minimum of an objective function, such as a least squares or negative log-likelihood function, with respect to the unknown model parameters is a problem often encountered in econometrics. Consequently, students of econometrics and applied econometricians are usually well-grounded in the broad differences between the numerical procedures employed to solve these problems. Often, however, relatively little time is given to understanding the practical subtleties of implementing these schemes when faced with illbehaved problems. This paper addresses some of the details involved in practical optimisation, such as dealing with constraints on the parameters, specifying starting values, termination criteria and analytical gradients, and illustrates some of the general ideas with several instructive examples.

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File URL: http://www.ncer.edu.au/papers/documents/NCER_WpNo32Aug08.pdf
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Bibliographic Info

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 32.

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Length: 26 pages
Date of creation: 18 Aug 2008
Date of revision:
Handle: RePEc:qut:auncer:2008-21

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Keywords: gradient algorithms; unconstrained optimisation; generalised method of moments.;

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  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  2. Chan, K C, et al, 1992. " An Empirical Comparison of Alternative Models of the Short-Term Interest Rate," Journal of Finance, American Finance Association, vol. 47(3), pages 1209-27, July.
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  4. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
  5. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  6. John Freebairn & Bill Griffiths, 2006. "Introduction," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages S1-S1, 09.
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