Estimating Nonlinear Dynamic Equilibrium Economies: A Likelihood Approach

FRB of Atlanta Working Paper No. 2004-1

56 Pages Posted: 16 Feb 2004

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004

Abstract

This paper presents a framework to undertake likelihood-based inference in nonlinear dynamic equilibrium economies. The authors develop a sequential Monte Carlo algorithm that delivers an estimate of the likelihood function of the model using simulation methods. This likelihood can be used for parameter estimation and for model comparison. The algorithm can deal both with nonlinearities of the economy and with the presence of non-normal shocks. The authors show consistency of the estimate and its good performance in finite simulations. This new algorithm is important because the existing empirical literature that wanted to follow a likelihood approach was limited to the estimation of linear models with Gaussian innovations. The authors apply their procedure to estimate the structural parameters of the neoclassical growth model.

Keywords: dynamic equilibrium economies, likelihood function, nonlinear solution methods

JEL Classification: C63, C68, E37

Suggested Citation

Fernández-Villaverde, Jesús and Rubio-Ramirez, Juan Francisco, Estimating Nonlinear Dynamic Equilibrium Economies: A Likelihood Approach (January 2004). FRB of Atlanta Working Paper No. 2004-1. Available at SSRN: https://ssrn.com/abstract=501623 or http://dx.doi.org/10.2139/ssrn.501623

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Juan Francisco Rubio-Ramirez

Federal Reserve Bank of Atlanta - Research Department ( email )

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HOME PAGE: http://www.econ.umn.edu/~rubio

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