Efficient Likelihood Evaluation of State-Space Representations

44 Pages Posted: 11 Feb 2012

See all articles by David N. DeJong

David N. DeJong

University of Pittsburgh - Department of Economics

Roman Liesenfeld

University of Cologne, Department of Economics

Guilherme V. Moura

Universidade Federal de Santa Catarina (UFSC) - Department of Economics

Jean-Francois Richard

University of Pittsburgh - Department of Economics

Hariharan Dharmarajan

University of Pittsburgh

Date Written: August 1, 2011

Abstract

We develop a numerical procedure that facilitates efficient likelihood evaluation in applications involving non-linear and non-Gaussian state-space models. The procedure employs continuous approximations of filtering densities, and delivers unconditionally optimal global approximations of targeted integrands to achieve likelihood approximation. Optimized approximations of targeted integrands are constructed via efficient importance sampling. Resulting likelihood approximations are continuous functions of model parameters, greatly enhancing parameter estimation. We illustrate our procedure in applications to dynamic stochastic general equilibrium models.

Keywords: dynamic stochastic general equilibrium model, efficient importance sampling, kernel density approximation, particle filter

Suggested Citation

Dejong, David N. and Liesenfeld, Roman and Moura, Guilherme Valle and Richard, Jean-Francois and Dharmarajan, Hariharan, Efficient Likelihood Evaluation of State-Space Representations (August 1, 2011). Available at SSRN: https://ssrn.com/abstract=2002805 or http://dx.doi.org/10.2139/ssrn.2002805

David N. Dejong (Contact Author)

University of Pittsburgh - Department of Economics ( email )

4A21 Forbes Quad
Pittsburgh, PA 15260
United States
(412) 648-2242 (Phone)

Roman Liesenfeld

University of Cologne, Department of Economics ( email )

Albertus-Magnus-Platz
D-50931 Köln
Germany

Guilherme Valle Moura

Universidade Federal de Santa Catarina (UFSC) - Department of Economics ( email )

PO Box 476
Florianopolis, SC 88010-970
Brazil

Jean-Francois Richard

University of Pittsburgh - Department of Economics ( email )

4901 Wesley Posvar Hall
230 South Bouquet Street
Pittsburgh, PA 15260
United States
412-648-1750 (Phone)

Hariharan Dharmarajan

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

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