Indirect inference with a non-smooth criterion function

DOI10.1016/J.JECONOM.2019.06.003zbMATH Open1452.62906arXiv1708.02365OpenAlexW2888834154WikidataQ127524861 ScholiaQ127524861MaRDI QIDQ2330740FDOQ2330740

Authors: David T. Frazier, Tatsushi Oka, Dan Zhu 

Publication date: 23 October 2019

Published in: Journal of Econometrics (Search for Journal in Brave)

Abstract: Indirect inference requires simulating realisations of endogenous variables from the model under study. When the endogenous variables are discontinuous functions of the model parameters, the resulting indirect inference criterion function is discontinuous and does not permit the use of derivative-based optimisation routines. Using a change of variables technique, we propose a novel simulation algorithm that alleviates the discontinuities inherent in such indirect inference criterion functions, and permits the application of derivative-based optimisation routines to estimate the unknown model parameters. Unlike competing approaches, this approach does not rely on kernel smoothing or bandwidth parameters. Several Monte Carlo examples that have featured in the literature on indirect inference with discontinuous outcomes illustrate the approach, and demonstrate the superior performance of this approach over existing alternatives.

Full work available at URL: https://arxiv.org/abs/1708.02365

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zbMATH Keywords

indirect inferencesimulation estimatorsdynamic discrete choice modelsdiscontinuous objective functions

Mathematics Subject Classification ID

Computational methods for problems pertaining to statistics (62-08) Applications of statistics to economics (62P20)

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Cited In (7)

• Indirect inference for locally stationary models
• Approximate maximum likelihood for complex structural models
• Discontinuities in indirect estimation: an application to EAR models
• Generalized indirect inference for discrete choice models
• Global implicit function theorems and the online expectation–maximisation algorithm
• A simple example of an indirect estimator with discontinuous limit theory in the MA(1) model
• Indirect inference with(out) constraints

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