Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-01-19
Number: 15-009/III
Author-Name: Francisco Blasques
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Artem Duplinskiy
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Title: Penalized Indirect Inference
Abstract: Parameter estimates of structural economic models are often difficult to interpret at the light of the underlying economic theory. Bayesian methods have become increasingly popular as a tool for conducting inference on structural models since priors offer a way to exert control over the estimation results. This paper proposes a penalized indirect inference estimator that allows researchers to obtain economically meaningful parameter estimates in a frequentist setting.
The asymptotic properties of the estimator are established for both correctly and incorrectly specified models. A Monte Carlo study reveals the role of the penalty function in shaping the finite sample distribution of the estimator. The advantages of using this estimator are highlighted in the empirical study of a state-of-the-art dynamic stochastic general equilibrium model.
Classification-JEL: C15, C13, D58, E32
Keywords: Penalized estimation, Indirect Inference, Simulation-based methods, DSGE models
File-Url: https://papers.tinbergen.nl/15009.pdf
File-Format: application/pdf
File-Size: 618135 bytes
Handle: RePEc:tin:wpaper:20150009