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Monte Carlo Test Applied to Models Estimated by Indirect Inference

  • Jean-Marie Dufour

    (Universite de Montreal)

  • Pascale Valery

    (Universite de Montreal)

In this paper, we propose finite-sample inference procedures for parametric econometric models whose likelihood function is intractable and require simulation-based estimation methods, like indirect inference (Gourieroux, Monfort and Renault, 1993) or the efficient method of moments (Gallant and Tauchen, 1996). The procedures proposed are based on extensions of the technique of Monte Carlo tests which applies naturally to any model that can simulated. In particular, we show that the method of maximized Monte Carlo tests allows to control perfectly the level of test procedures for which only asymptotic justifions are typically proposed. The technique is applied to inference on stochastic differential equations.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1667.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1667
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  1. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  2. Jean-Marie Dufour & Linda Khalaf, . "Simulation Based Finite and Large Sample Inference Methods in Multiple Regression Models," Computing in Economics and Finance 1997 141, Society for Computational Economics.
  3. Jean-Marie Dufour & Jan F. Kiviet, 1998. "Exact Inference Methods for First-Order Autoregressive Distributed Lag Models," Econometrica, Econometric Society, vol. 66(1), pages 79-104, January.
  4. Andersen, Torben G. & Chung, Hyung-Jin & Sorensen, Bent E., 1999. "Efficient method of moments estimation of a stochastic volatility model: A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 91(1), pages 61-87, July.
  5. Jean-Marie Dufour, 1997. "Some Impossibility Theorems in Econometrics with Applications to Structural and Dynamic Models," Econometrica, Econometric Society, vol. 65(6), pages 1365-1388, November.
  6. Dufour, Jean-Marie, 2006. "Monte Carlo tests with nuisance parameters: A general approach to finite-sample inference and nonstandard asymptotics," Journal of Econometrics, Elsevier, vol. 133(2), pages 443-477, August.
  7. Jean-Marie Dufour & Lynda Khalaf, 1999. "Simulation Based Finite- and Large-Sample Inference Methods in Simultaneous Equations," Computing in Economics and Finance 1999 824, Society for Computational Economics.
  8. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
  9. Kiviet, Jan F. & Dufour, Jean-Marie, 1997. "Exact tests in single equation autoregressive distributed lag models," Journal of Econometrics, Elsevier, vol. 80(2), pages 325-353, October.
  10. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De.
  11. Bansal, Ravi & Gallant, A. Ronald & Hussey, Robert & Tauchen, George, 1995. "Nonparametric estimation of structural models for high-frequency currency market data," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 251-287.
  12. Dufour, Jean-Marie & Kiviet, Jan F., 1996. "Exact tests for structural change in first-order dynamic models," Journal of Econometrics, Elsevier, vol. 70(1), pages 39-68, January.
  13. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
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