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Consistency of a Method of Moments Estimator Based on Numerical Solutions to Asset Pricing Models

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  • Burnside, Craig

Abstract

This paper considers the properties of estimators based on numerical solutions to a class of economic models. In particular, the numerical methods discussed are those applied in the solution of linear integral equations, specifically Fredholm equations of the second kind. These integral equations arise out of economic models in which endogenous variables appear linearly in the Euler equations, but for which easily characterized solutions do not exist. Tauchen and Hussey [24] have proposed the use of these methods in the solution of the consumption-based asset pricing model. In this paper, these methods are used to construct method of moments estimators where the population moments implied by a model are approximated by the population moments of numerical solutions. These estimators are shown to be consistent if the accuracy of the approximation is increased with the sample size. This result depends on the solution method having the property that the moments of the approximate solutions converge uniformly in the model parameters to the moments of the true solutions.

Suggested Citation

  • Burnside, Craig, 1993. "Consistency of a Method of Moments Estimator Based on Numerical Solutions to Asset Pricing Models," Econometric Theory, Cambridge University Press, vol. 9(04), pages 602-632, August.
  • Handle: RePEc:cup:etheor:v:9:y:1993:i:04:p:602-632_00
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    Cited by:

    1. Gonzalez-Astudillo, Manuel, 2009. "An Equilibrium Model of the Term Structure of Interest Rates: Recursive Preferences at Play," MPRA Paper 19153, University Library of Munich, Germany.

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