1. Through the looking glass: Indirect inference via simple equilibria
- Author
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Veronika Czellar, Laurent E. Calvet, emlyon business school, Groupement de Recherche et d'Etudes en Gestion à HEC (GREGH), Ecole des Hautes Etudes Commerciales (HEC Paris)-Centre National de la Recherche Scientifique (CNRS), HEC Paris Research Paper Series, and business school, emlyon
- Subjects
JEL: C - Mathematical and Quantitative Methods/C.C0 - General/C.C0.C01 - Econometrics ,Large class ,JEL: C - Mathematical and Quantitative Methods/C.C5 - Econometric Modeling/C.C5.C53 - Forecasting and Prediction Methods • Simulation Methods ,Economics and Econometrics ,Hidden Markov model ,long-run risk ,learning ,value at risk ,indirect inference ,particle filters ,Computer science ,Monte Carlo method ,jel:C01 ,Indirect Inference ,01 natural sciences ,Value at risk ,Indirect inference ,010104 statistics & probability ,Simple (abstract algebra) ,0502 economics and business ,Econometrics ,JEL: C - Mathematical and Quantitative Methods/C.C1 - Econometric and Statistical Methods and Methodology: General/C.C1.C15 - Statistical Simulation Methods: General ,Capital asset pricing model ,Learning ,Applied mathematics ,JEL: C - Mathematical and Quantitative Methods/C.C5 - Econometric Modeling/C.C5.C58 - Financial Econometrics ,050207 economics ,0101 mathematics ,[SHS.ECO] Humanities and Social Sciences/Economics and Finance ,Long-run risk ,jel:C53 ,Applied Mathematics ,05 social sciences ,JEL: C - Mathematical and Quantitative Methods/C.C1 - Econometric and Statistical Methods and Methodology: General/C.C1.C13 - Estimation: General ,Estimator ,jel:C13 ,[SHS.ECO]Humanities and Social Sciences/Economics and Finance ,jel:C58 ,jel:C15 ,[SHS.GESTION]Humanities and Social Sciences/Business administration ,Particle filters ,[SHS.GESTION] Humanities and Social Sciences/Business administration ,Particle filter - Abstract
International audience; This paper proposes an indirect inference (Gourieroux, Monfort and Renault, 1993; Smith, 1993) estimation method for a large class of dynamic equilibrium models. Our approach is based on the observation that the econometric structure of these systems naturally generates auxiliary equilibria that can serve as building blocks for estimation. We use this insight to develop an accurate estimator for the long-run risk model of Bansal and Yaron (2004). We demonstrate the accuracy of our method by Monte Carlo simulation and estimate the long-run risk model on U.S. data. We also illustrate the good performance of the methodology on an asset pricing model with investor learning.
- Published
- 2015