Penalized Sieve Estimation and Inference of Semi-Nonparametric Dynamic Models: A Selective Review

Xiaohong Chen ()

No 1804, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: In this selective review, we first provide some empirical examples that motivate the usefulness of semi-nonparametric techniques in modelling economic and financial time series. We describe popular classes of semi-nonparametric dynamic models and some temporal dependence properties. We then present penalized sieve extremum (PSE) estimation as a general method for semi-nonparametric models with cross-sectional, panel, time series, or spatial data. The method is especially powerful in estimating difficult ill-posed inverse problems such as semi-nonparametric mixtures or conditional moment restrictions. We review recent advances on inference and large sample properties of the PSE estimators, which include (1) consistency and convergence rates of the PSE estimator of the nonparametric part; (2) limiting distributions of plug-in PSE estimators of functionals that are either smooth (i.e., root-n estimable) or non-smooth (i.e., slower than root-n estimable); (3) simple criterion-based inference for plug-in PSE estimation of smooth or non-smooth functionals; and (4) root-n asymptotic normality of semiparametric two-step estimators and their consistent variance estimators. Examples from dynamic asset pricing, nonlinear spatial VAR, semiparametric GARCH, and copula-based multivariate financial models are used to illustrate the general results.

Keywords: Nonlinear time series; Temporal dependence; Tail dependence; Penalized sieve M estimation; Penalized sieve minimum distance; Semiparametric two-step; Nonlinear ill-posed inverse; Mixtures; Conditional moment restrictions; Nonparametric endogeneity; Dynamic asset pricing; Varying coefficient VAR; GARCH; Copulas; Value-at-risk (search for similar items in EconPapers)
JEL-codes: C13 C14 C20 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2011-05
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published in Advances in Economics and Econometrics, 2010 World Congress of the Econometric Society book volumes, Cambridge University Press, 2013

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Working Paper: Penalized sieve estimation and inference of semi-nonparametric dynamic models: a selective review (2011)
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