Estimation of Dynamic Models with Nonparametric Simulated Maximum Likelihood

36 Pages Posted: 1 Mar 2006

See all articles by Dennis Kristensen

Dennis Kristensen

University College London; Aarhus University - CREATES; Cemmap (Centre for Microdata Methods and Practice)

Yongseok Shin

Washington University in St. Louis; Federal Reserve Banks - Federal Reserve Bank of St. Louis; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2005

Abstract

We propose a simulated maximum likelihood estimator (SMLE) for general stochastic dynamic models based on nonparametric kernel methods. The method requires that, while the actual likelihood function cannot be written down, we can still simulate observations from the model. From the simulated observations, we estimate the unknown density of the model nonparametrically by kernel methods, and then obtain the SMLEs of the model parameters. Our method avoids the issue of non-identification arising from poor choice of auxiliary models in simulated methods of moments (SMM) or indirect inference. More importantly, our SMLEs achieve higher efficiency under weak regularity conditions. Finally, our method allows for potentially nonstationary processes, including time-inhomogeneous dynamics.

Keywords: simulated likelihood, nonparametric, dynamic models, consistency, asymptotic normality

JEL Classification: C14, C15, C22, C32

Suggested Citation

Kristensen, Dennis and Kristensen, Dennis and Shin, Yongseok, Estimation of Dynamic Models with Nonparametric Simulated Maximum Likelihood (January 15, 2005). Available at SSRN: https://ssrn.com/abstract=887174 or http://dx.doi.org/10.2139/ssrn.887174

Dennis Kristensen (Contact Author)

University College London ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 (0)20 7679 5846 (Phone)

HOME PAGE: http://www.ucl.ac.uk/economics/

Aarhus University - CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Cemmap (Centre for Microdata Methods and Practice) ( email )

7 Ridgmount Street
London WC1E 7AE, WC1E 7 AE
United Kingdom

Yongseok Shin

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO 63130-4899
United States

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States