"Small Data": Inference with Occasionally Observed States

62 Pages Posted: 14 Jan 2025 Last revised: 14 Jan 2025

See all articles by Alexandros Gilch

Alexandros Gilch

University of Bonn

Andreas Lanz

University of Basel - Faculty of Business and Economics

Philipp Müller

Accenture AG; University of Zurich - Department of Business Administration

Gregor Reich

Tsumcor Research AG

Ole Wilms

University of Hamburg; Tilburg University - Tilburg University School of Economics and Management

Date Written: January 14, 2024

Abstract

We study the estimation of dynamic economic models for which some of the state variables are observed only occasionally by the econometrician—a common problem in many fields, ranging from marketing to finance to industrial organization. If those occasional state observations are serially correlated, the likelihood function of the model becomes a high-dimensional integral over a nonstandard domain. We generalize the recursive likelihood function integration procedure (RLI; Reich, 2018) to incorporate the occasional observations, enabling likelihood-based inference in such estimation problems. In extensive Monte Carlo studies, we demonstrate the favorable properties of the proposed method for identifying all model parameters and compare it to alternative methods. 

Keywords: maximum likelihood estimation, occasional state observations, recursive likelihood function integration, interpolation, numerical quadrature, Markov models, dynamic discrete choice models, long-run risk models

JEL Classification: C13,C63,C49

Suggested Citation

Gilch, Alexandros and Lanz, Andreas and Müller, Philipp and Reich, Gregor and Wilms, Ole, "Small Data": Inference with Occasionally Observed States (January 14, 2024). HEC Paris Research Paper No. MKG-2020-1380, Available at SSRN: https://ssrn.com/abstract=3638618 or http://dx.doi.org/10.2139/ssrn.3638618

Alexandros Gilch

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Andreas Lanz

University of Basel - Faculty of Business and Economics ( email )

Petersplatz 1
Basel, 4001
Switzerland

Philipp Müller (Contact Author)

Accenture AG ( email )

Fraumuensterstr. 16
Zurich, Zurich 8001
Switzerland

University of Zurich - Department of Business Administration ( email )

Rämistrasse 71
Zurich, CH-8006
Switzerland

Gregor Reich

Tsumcor Research AG ( email )

Switzerland

Ole Wilms

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

HOME PAGE: http://www.olewilms.com

Tilburg University - Tilburg University School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

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