Indirect Estimation of Just-Identified Models with Control Variates
Simulation estimators, such as indirect inference or simulated maximum likelihood, are successfully employed for estimating models where the likelihood function does not have a simple analytical expression. They adjust for the bias (inconsistency) produced by the estimation of an auxiliary model that can be manageable, but is essentially misspecified. The price to be paid is an increased variance of the estimated parameters. A component of the variance depends on the stochastic simulation involved in the estimation procedure. To reduce this undesirable effect, one should properly increase the number of simulations (or the length of each simulation) and thus the computational cost. Alternatively, this paper shows how variance reduction can be achieved, at virtually no additional computational cost, by use of control variates. This technique can be easily applied in the just-identified context, that is when the number of parameters is the same in the econometric model (the model of interest) and the auxiliary model. This is a case which often occurs in practical applications. Several models are explicitly considered and experimented with: moving average model, Arma model, stochastic differential equations, dynamic Tobit model, discrete time stochastic volatility models, logit models with random effects. Monte Carlo experiments show, in some cases, a global efficiency gain up to almost 50% over the simplest indirect estimator, obtained at about the same computational cost
|Date of creation:||1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39 055 2751500
Fax: +39 055 4223560
Web page: http://www.disia.unifi.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- BROZE, Laurence & SCAILLET, Olivier & ZAKOIAN, Jean-Michel, 1995.
"Quasi Indirect Inference for Diffusion Processes,"
CORE Discussion Papers
1995005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Chiara Monfardini, 1998. "Estimating stochastic volatility models through indirect inference," Econometrics Journal, Royal Economic Society, vol. 1(Conferenc), pages C113-C128.
- Calzolari, Giorgio & Di Iorio, Francesca & Fiorentini, Gabriele, 1996.
"Control variates for variance reduction in indirect inference: interest rate models in continuous time,"
23160, University Library of Munich, Germany, revised Nov 1996.
- Giorgio Calzolari & Francesca Di Iorio & Gabriele Fiorentini, 1998. "Control variates for variance reduction in indirect inference: Interest rate models in continuous time," Econometrics Journal, Royal Economic Society, vol. 1(Conferenc), pages C100-C112.
- Gabriele Fiorentini & Francesca Di Iorio & Giorgio Calzolari, 1998. "- Control Variates For Variance Reduction In Indirect Inference: Interest Rate Models In Continuous Time," Working Papers. Serie AD 1998-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Bianchi, Carlo & Cleur, Eugene M, 1996. "Indirect Estimation of Stochastic Differential Equation Models: Some Computational Experiments," Computational Economics, Society for Computational Economics, vol. 9(3), pages 257-74, August.
- Calzolari, Giorgio & Sterbenz, Frederic P, 1986. "Control Variates to Estimate the Reduced Form Variances in Econometric Models," Econometrica, Econometric Society, vol. 54(6), pages 1483-90, November.
- Hendry, David F. & Harrison, Robin W., 1974. "Monte Carlo methodology and the small sample behaviour of ordinary and two-stage least squares," Journal of Econometrics, Elsevier, vol. 2(2), pages 151-174, July.
- Calzolari, Giorgio, 1979. "Antithetic variates to estimate the simulation bias in non-linear models," Economics Letters, Elsevier, vol. 4(4), pages 323-328.
- Mealli, Fabrizia & Rampichini, Carla, 1999. "Estimating binary multilevel models through indirect inference," Computational Statistics & Data Analysis, Elsevier, vol. 29(3), pages 313-324, January.
- repec:fth:inseep:9821 is not listed on IDEAS
- Monica Billio & Alain Monfort & Christian P, Robert, 1998. "The Simulated Likelihood Ratio (SLR) Method," Working Papers 98-21, Centre de Recherche en Economie et Statistique.
- Danielsson, Jon, 1994. "Stochastic volatility in asset prices estimation with simulated maximum likelihood," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 375-400.
- Longford, N. T., 1994. "Logistic regression with random coefficients," Computational Statistics & Data Analysis, Elsevier, vol. 17(1), pages 1-15, January.
- Bianchi, C. & Cesari, R. & Panattoni, L., 1994. "Alternative Estimators of the Cox, ingersoll and Ross Model of the Term Structure of Interest Rates: A Monte Carlo Comparison," Papers 236, Banca Italia - Servizio di Studi.
- White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
When requesting a correction, please mention this item's handle: RePEc:fir:econom:quaderno46. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francesco Calvori)
If references are entirely missing, you can add them using this form.