Estimating Dynamic Equilibrium Models Using Mixed Frequency Macro and Financial Data

Journal of Econometrics, 194:1, 2016

PDF includes Web Appendix

106 Pages Posted: 13 Mar 2011 Last revised: 17 Dec 2016

Bent Jesper Christensen

Aarhus University; Aarhus University; Aarhus University

Olaf Posch

Universität Hamburg, Department of Economics; CREATES

Michel van der Wel

Erasmus University Rotterdam; CREATES; ERIM; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: April 18, 2016

Abstract

We provide a framework for inference in dynamic equilibrium models including financial market data at daily frequency, along with macro series at standard lower frequency. Our formulation of the macro-finance model in continuous time conveniently accounts for the difference in observation frequency. We suggest the use of martingale estimating functions (MEF) to infer the structural parameters of the model directly through a nonlinear scheme. This method is compared to regression-based methods and the generalized method of moments (GMM). We illustrate our approaches by estimating various versions of the AK-Vasicek model with mean-reverting interest rates. We provide asymptotic theory and Monte Carlo evidence on the small sample behavior of the estimators and report empirical estimates using 30 years of U.S. macro and financial data.

Keywords: Structural estimation, AK-Vasicek model, Martingale estimating function

JEL Classification: C13, E32, O40

Suggested Citation

Christensen, Bent Jesper and Posch, Olaf and van der Wel, Michel, Estimating Dynamic Equilibrium Models Using Mixed Frequency Macro and Financial Data (April 18, 2016). PDF includes Web Appendix. Available at SSRN: https://ssrn.com/abstract=1783506 or http://dx.doi.org/10.2139/ssrn.1783506

Bent Jesper Christensen

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus V, 8210
Denmark

Olaf Posch (Contact Author)

Universität Hamburg, Department of Economics ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Michel Van der Wel

Erasmus University Rotterdam ( email )

Burg. Oudlaan 50
Rotterdam, NL 3062 PA
Netherlands

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

ERIM ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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