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The objective function of simulation estimators near the boundary of the unstable region of the parameter space

Publication ,  Journal Article
Tauchen, G
Published in: Review of Economics and Statistics
1998

The paper examines the role of stability constraints in estimation by dynamic simulation. In particular, it analyzes the behavior of the objective function on either side of the boundary of the stability region of the parameter space. The main finding is that stability constraints may be ignored because the simulation-based objective function contains a built-in penalty to enforce stability. A key caveat, however, is that the dynamic stability of the auxiliary model that defines the moment conditions must be checked and enforced. An attempt to fit via simulation to moments defined by a dynamically unstable auxiliary model can be expected to lead to an ill-behaved objective function.

Duke Scholars

Published In

Review of Economics and Statistics

Publication Date

1998

Volume

80

Issue

3

Start / End Page

389 / 398

Related Subject Headings

  • Economics
  • 1403 Econometrics
  • 1402 Applied Economics
 

Citation

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Tauchen, G. (1998). The objective function of simulation estimators near the boundary of the unstable region of the parameter space. Review of Economics and Statistics, 80(3), 389–398.
Tauchen, G. “The objective function of simulation estimators near the boundary of the unstable region of the parameter space.” Review of Economics and Statistics 80, no. 3 (1998): 389–98.
Tauchen, G. “The objective function of simulation estimators near the boundary of the unstable region of the parameter space.” Review of Economics and Statistics, vol. 80, no. 3, 1998, pp. 389–98.

Published In

Review of Economics and Statistics

Publication Date

1998

Volume

80

Issue

3

Start / End Page

389 / 398

Related Subject Headings

  • Economics
  • 1403 Econometrics
  • 1402 Applied Economics