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On efficient simulation in dynamic models

Author

Listed:
  • Abadir Karim M.

    (Imperial College London, London)

  • Paruolo Paolo

    (Department of Economics, University of Insubria, Italy)

Abstract

Ways of improving the efficiency of Monte-Carlo (MC) techniques are studied for dynamic models. Such models cause the conventional Antithetic Variate (AV) technique to fail, and will be proved to reduce the benefit from using Control Variates with nearly nonstationary series. This paper suggests modifications of the two conventional variance reduction techniques to enhance their efficiency. New classes of AVs are also proposed. Methods of reordering innovations are found to do less well than others which rely on changing some signs in the spirit of the traditional AV. Numerical and analytical calculations are given to investigate the features of the proposed techniques. JEL classification code: C15 Key words: Dynamic models, Monte-Carlo (MC), Variance Reduction Technique (VRT), Antithetic Variate (AV), Control Variate (CV), Efficiency Gain (EG), Response Surface (RS).

Suggested Citation

  • Abadir Karim M. & Paruolo Paolo, 2008. "On efficient simulation in dynamic models," Economics and Quantitative Methods qf0709, Department of Economics, University of Insubria.
    • Handle: RePEc:ins:quaeco:qf0709
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    File URL: https://www.eco.uninsubria.it/RePEc/pdf/QF2007_9.pdf
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    References listed on IDEAS

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    1. Giovanni Crespi & Ivan Ginchev & Matteo Rocca, 2006. "First-order optimality conditions in set-valued optimization," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 63(1), pages 87-106, February.
    2. Johannes Jahn & Rüdiger Rauh, 1997. "Contingent epiderivatives and set-valued optimization," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 46(2), pages 193-211, June.
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    Cited by:

    1. Lawford, Steve & Stamatogiannis, Michalis P., 2009. "The finite-sample effects of VAR dimensions on OLS bias, OLS variance, and minimum MSE estimators," Journal of Econometrics, Elsevier, vol. 148(2), pages 124-130, February.

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    More about this item

    Keywords

    dynamic models; monte-carlo (mc); variance reduction technique (vrt); antithetic variate (av); control variate (cv); efficiency gain (eg); response surface (rs).;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General

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