Constrained Optimization Approaches to Estimation of Structural Models: Comment

10 Pages Posted: 24 Mar 2015

See all articles by Fedor Iskhakov

Fedor Iskhakov

University of New South Wales (UNSW) - ARC Centre of Excellence in Population Ageing Research (CEPAR)

Jinhyuk Lee

Ulsan National Institute of Science and Technology (UNIST)

John Rust

Department of Economics, Georgetown University

Kyoungwon Seo

Seoul National University

Bertel Schjerning

University of Copenhagen - Department of Economics

Date Written: January 29, 2015

Abstract

We revisit the comparison of mathematical programming with equilibrium constraints (MPEC) and nested fixed point (NFXP) algorithms for estimating structural dynamic models by Su and Judd (SJ, 2012). They used an inefficient version of the nested fixed point algorithm that relies on successive approximations. We re-do their comparison using the more efficient version of NFXP proposed by Rust (1987), which combines successive approximations and Newton-Kantorovich iterations to solve the fixed point problem (NFXP-NK). We show that MPEC and NFXP-NK are similar in performance when the sample size is relatively small. However, in problems with larger sample sizes, NFXP-NK outperforms MPEC by a significant margin.

Keywords: Structural estimation, dynamic discrete choice, NFXP, MPEC, successive approximations, Newton-Kantorovich algorithm

JEL Classification: C10, C44, C61

Suggested Citation

Iskhakov, Fedor and Lee, Jinhyuk and Rust, John and Seo, Kyoungwon and Schjerning, Bertel, Constrained Optimization Approaches to Estimation of Structural Models: Comment (January 29, 2015). Available at SSRN: https://ssrn.com/abstract=2583655 or http://dx.doi.org/10.2139/ssrn.2583655

Fedor Iskhakov

University of New South Wales (UNSW) - ARC Centre of Excellence in Population Ageing Research (CEPAR) ( email )

Level 6 Central Lobby (enter via East Lobby)
Australian School of Business Building
Sydney, New South Wales NSW 2052
Australia

Jinhyuk Lee

Ulsan National Institute of Science and Technology (UNIST) ( email )

gil 50
Ulsan, 689-798
Korea, Republic of (South Korea)

John Rust (Contact Author)

Department of Economics, Georgetown University ( email )

Washington, DC 20057
United States
1-202-687-6806 (Phone)
1-202-687-6102 (Fax)

Kyoungwon Seo

Seoul National University ( email )

Seoul
Korea, Republic of (South Korea)

HOME PAGE: http://https://sites.google.com/site/seo8240/

Bertel Schjerning

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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