PPML Estimation of Dynamic Discrete Choice Models with Aggregate Shocks

40 Pages Posted: 20 Apr 2016

See all articles by Erhan Artuc

Erhan Artuc

World Bank; World Bank - Development Research Group (DECRG)

Date Written: June 1, 2013

Abstract

This paper introduces a computationally efficient method for estimating structural parameters of dynamic discrete choice models with large choice sets. The method is based on Poisson pseudo maximum likelihood (PPML) regression, which is widely used in the international trade and migration literature to estimate the gravity equation. Unlike most of the existing methods in the literature, it does not require strong parametric assumptions on agents' expectations, thus it can accommodate macroeconomic and policy shocks. The regression requires count data as opposed to choice probabilities; therefore it can handle sparse decision transition matrices caused by small sample sizes. As an example application, the paper estimates sectoral worker mobility in the United States.

Keywords: Economic Theory & Research, Science Education, Scientific Research & Science Parks, Statistical & Mathematical Sciences, Econometrics

Suggested Citation

Artuc, Erhan, PPML Estimation of Dynamic Discrete Choice Models with Aggregate Shocks (June 1, 2013). World Bank Policy Research Working Paper No. 6480, Available at SSRN: https://ssrn.com/abstract=2280642

Erhan Artuc (Contact Author)

World Bank ( email )

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Washington, DC 20433
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World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
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Washington, DC 20433
United States

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