Indirect Inference

This paper, prepared for the Handbook of Statistics, vol.14, Statistical Methods in Finance, surveys the subject of Stochastic Volatility. The following subjects are covered : volatility in financial markets (instantaneous volatility of asset returns, implied volatilities in option prices and related stylized facts), statistical modelling in discrete and continuous time and finally statistical inference ( methods of moments, Quasi-Maximum-Likelihood, Likelihood

This paper proposes an extended version of the New Key- nesian Monetary (NKM) model which contemplates revision processes of output and inflation data in order to assess the importance of data revisions on the estimated monetary policy rule parameters. The estima- tion results of the extended NKM model suggest that real-time data are not rational forecasts of revised data. These

The goal of this work is to investigate the eects of time out of the labor market for childcare on women's lifecycle wage growth. We develop a dynamic lifecycle model of human capital, fertility, and labor supply for women. We estimate by indirect inference using importance sampling and formalize the use of this procedure. The results indicate a modest eect of fertility-induced non-employment spells on human capital accumulation. The dierence in human capital among prime age women would be approximately 2.4% higher at its peak if the relationship between fertility and working were eliminated, and 4.7% higher if the relationship between marriage and fertility was also eliminated.

Abstract: We evaluate the Smets-Wouters model of the US using indirect inference with a VAR representation of the main US data series. We find that the original New Keynesian SW model is on the margin of acceptance when SW's own estimates of the variances and time ...

This paper develops a structural model for obtaining price elasticities and evaluating consumer's response to changes in nonlinear tariffs when only panel data on household consumption are available. The model and the empirical strategy address problems implied by
nonlinear tariffs, existence of a fixed cost, and use of limited data, giving rise to a random effects model with a nonlinear individual effect. Results show that the estimated model does well at fitting data and demand is inelastic, although elasticity varies by initial consumption block. Then, I estimate welfare consequences of implementing several demand policies.

Real exchange rate (RER) is an important instrument for restoring sustainable economic growth in the small open economy with large export share. RER of Ukrainian currency can be explained within the real business cycle (RBC) framework without any forms of nominal rigidities. Fitting Ukrainian quarterly data for the period of 1996:Q1-2009:Q3 into the small open economy real business cycle model and testing it by method of indirect inference shows that RER can be reproduced by RBC framework. The generated pseudo-samples for RER by method of bootstrapping allow to obtain the distribution of the best fit ARIMA(2,1,4) parameters and to show with the Wald statistics that those parameters lie within 95% confidence intervals of those estimated for bootstrapped pseudo Q parameters.

In this paper, we propose finite-sample inference procedures for parametric econometric models whose likelihood function is intractable and require simulation-based estimation methods, like indirect inference (Gourieroux, Monfort and Renault, 1993) or the efficient method of moments (Gallant and Tauchen, 1996). The procedures proposed are based on extensions of the technique of Monte Carlo tests which applies naturally to any model that can simulated. In particular, we show that the method of maximized Monte Carlo tests allows to control perfectly the level of test procedures for which only asymptotic justifions are typically proposed. The technique is applied to inference on stochastic differential equations.

The alpha-stable family of distributions constitutes a generalization of the Gaussian distribution, allowing for asymmetry and thicker tails. Its practical usefulness is coupled with a marked theoretical appeal, as it stems from a generalized version of the central limit theorem in which the assumption of the finiteness of the variance is replaced by a less restrictive assumption concerning a somehow regular behavior of the tails. Estimation difficulties have however hindered its diffusion among practitioners. Since simulated values from alpha-stable distributions can be straightforwardly obtained, the indirect inference approach could prove useful to overcome these estimation difficulties. In this paper we provide a description of how to implement such a method by using a skew-t distribution as an auxiliary model. The indirect inference approach will be introduced in the setting of the estimation of the distribution parameters and then extended to linear time series models with alp...

Using Monte Carlo experiments, we examine the performance of Indirect Inference tests of DSGE models, usually versions of the Smets-Wouters New Keynesian model of the US postwar period. We compare these with tests based on direct inference (using the Likelihood Ratio), and on the Del Negro-Schorfheide DSGE-VAR weight. We find that the power of all three tests is substantial so that a false model will tend to be rejected by all three; but that the power of the indirect inference tests are by far the greatest, necessitating re-estimation by indirect inference to ensure that the model is tested in its fullest sense.

In this paper, we derive the up to second order bias structure of bbθH,T, eθH,T andeeθH,T which are estimators that arise in the context of indirect inference theory. Our motivation stems from the fact that upon the so called GRT conditions, another indirect estimator bθH,T is up to second order unbiased. Upon initial results that concern the almost sure comparisons of the four estimators in finite samples, we analytically derive the terms of the up to second order Edgeworth expansion for each of the three estimators. Our results suggest that none of the three is in general, up to second order unbiased upon the GRT conditions.

For the first time, unidirectional rate constants of ethanol diffusion through the lipid membrane of a microorganism, the bacterium Zymomonas mobilis, were determined, thus replacing indirect inferences with direct kinetic data. The rate constants k1 (in to out) were 6.8 +/- 0.4s(-1) at 29 degrees C and 2.7 +/- 0.3s(-1) at 20 degrees C. They were determined by using 1H selective nuclear magnetic resonance spin magnetization transfer. The measurements were done on l-ml cell suspensions. No addition of radiotracers, withdrawing of aliquots, physical separation methods, or chemical manipulations were required. Until now, the rate constants of ethanol transport in microorganisms have been unknown because ethanol diffuses through the cytoplasmic membrane too quickly for radiolabel approaches. Net velocities of ethanol exchange were calculated from unidirectional rate constants and cytoplasmic volume, which was also determined with the same nuclear magnetic resonance experiments. The resu...