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Penalized Indirect Inference

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  • Francisco Blasques

    (VU University Amsterdam, the Netherlands)

  • Artem Duplinskiy

    (VU University Amsterdam, the Netherlands)

Abstract

Parameter estimates of structural economic models are often difficult to interpret at the light of the underlying economic theory. Bayesian methods have become increasingly popular as a tool for conducting inference on structural models since priors offer a way to exert control over the estimation results. This paper proposes a penalized indirect inference estimator that allows researchers to obtain economically meaningful parameter estimates in a frequentist setting. The asymptotic properties of the estimator are established for both correctly and incorrectly specified models. A Monte Carlo study reveals the role of the penalty function in shaping the finite sample distribution of the estimator. The advantages of using this estimator are highlighted in the empirical study of a state-of-the-art dynamic stochastic general equilibrium model.

Suggested Citation

  • Francisco Blasques & Artem Duplinskiy, 2015. "Penalized Indirect Inference," Tinbergen Institute Discussion Papers 15-009/III, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20150009
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    3. Wang, Dieter & Andrée, Bo Pieter Johannes & Chamorro, Andres Fernando & Spencer, Phoebe Girouard, 2022. "Transitions into and out of food insecurity: A probabilistic approach with panel data evidence from 15 countries," World Development, Elsevier, vol. 159(C).
    4. Wang,Dieter & Andree,Bo Pieter Johannes & Chamorro Elizondo,Andres Fernando & Spencer,Phoebe Girouard, 2020. "Stochastic Modeling of Food Insecurity," Policy Research Working Paper Series 9413, The World Bank.

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    More about this item

    Keywords

    Penalized estimation; Indirect Inference; Simulation-based methods; DSGE models;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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