Nested Pseudo-likelihood Estimation and Bootstrap-based Inference for Structural Discrete Markov Decision Models

Hiroyuki Kasahara () and Katsumi Shimotsu

No 20064, UWO Department of Economics Working Papers from University of Western Ontario, Department of Economics

Abstract: This paper analyzes the higher-order properties of nested pseudo-likelihood (NPL) estimators and their practical implementation for parametric discrete Markov decision models in which the probability distribution is defined as a fixed point. We propose a new NPL estimator that can achieve quadratic convergence without fully solving the fixed point problem in every iteration. We then extend the NPL estimators to develop one-step NPL bootstrap procedures for discrete Markov decision models and provide some Monte Carlo evidence based on a machine replacement model of Rust (1987). The proposed one-step bootstrap test statistics and confidence intervals improve upon the first order asymptotics even with a relatively small number of iterations. Improvements are particularly noticeable when analyzing the dynamic impacts of counterfactual policies.

Keywords: k-step bootstrap; maximum pseudo-likelihood estimators; nested fixed point algorithm; Newton-Raphson method; policy iteration. (search for similar items in EconPapers)
JEL-codes: C12 C13 C15 C44 C63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2006
View list of references View citations in EconPapers

Downloads: (external link)
http://economics.uwo.ca/econref/WorkingPapers/rese ... /wp2006/wp2006_4.pdf (application/pdf)

Related works:
Working Paper: Nested Pseudo-likelihood Estimation and Bootstrap-based Inference for Structural Discrete Markov Decision Models (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:uwo:uwowop:20064

Ordering information: This working paper can be ordered from
http://economics.uwo ... mittingordering.html
The price is Paper copy available by mail at a cost of $10.00 Canadian each.

Access Statistics for this paper

More papers in UWO Department of Economics Working Papers from University of Western Ontario, Department of Economics
Address: Department of Economics, Reference Centre, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Series data maintained by ().