Constrained Emm and Indirect Inference Estimation

CEMFI Working Paper No. 0005

Posted: 3 May 2000

See all articles by Giorgio Calzolari

Giorgio Calzolari

Universita di Firenze - Dipartimento di Statistica

Enrique Sentana

Centro de Estudios Monetarios y Financieros (CEMFI); Financial Markets Group; Centre for Economic Policy Research (CEPR)

Gabriele Fiorentini

Universita di Firenze - Dipartimento di Statistica

Date Written: April 2000

Abstract

We develop generalised indirect inference procedures that handle equality and inequality constraints on the auxiliary model parameters. We obtain expressions for the optimal weighting matrices, and discuss as examples an MA(1) estimated as AR(1), an AR(1) estimated as MA(1), and a log-normal stochastic volatility process estimated as a GARCH(1,1) with Gaussian or t distributed errors. In the first example, the constraints have no effect, while in the second, they allow us to achieve full efficiency. As for the third, neither procedure systematically outperforms the other, but equality restricted estimators are better when the additional parameter is poorly estimated.

JEL Classification: C13, C15

Suggested Citation

Calzolari, Giorgio and Sentana, Enrique and Fiorentini, Gabriele, Constrained Emm and Indirect Inference Estimation (April 2000). CEMFI Working Paper No. 0005. Available at SSRN: https://ssrn.com/abstract=223228

Giorgio Calzolari

Universita di Firenze - Dipartimento di Statistica ( email )

Viale Morgagni, 59
50134 Firenze
Italy
+39 055 4237 217 (Phone)
+39 055 4223 560 (Fax)

Enrique Sentana (Contact Author)

Centro de Estudios Monetarios y Financieros (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~sentana/

Financial Markets Group

Houghton Street
London School of Economics & Political Science (LSE)
London WC2A 2AE
United Kingdom
+44 20 7955 7002 (Phone)
+44 20 7852 3580 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gabriele Fiorentini

Universita di Firenze - Dipartimento di Statistica ( email )

Viale Morgagni, 59
50134 Firenze
Italy
+39 055 4237 274 (Phone)
+39 055 4223 560 (Fax)

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