Biases in Maximum Simulated Likelihood Estimation of Bivariate Models

Jumamyradov Maksat () and Murat Munkin
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Jumamyradov Maksat: Department of Economics, University of South Florida, Tampa, FL, USA

Journal of Econometric Methods, 2022, vol. 11, issue 1, 55-70

Abstract: This paper finds that the maximum simulated likelihood (MSL) estimator produces substantial biases when applied to the bivariate normal distribution. A specification of the random parameter bivariate normal model is considered, in which a direct comparison between the MSL and maximum likelihood (ML) estimators is feasible. The analysis shows that MSL produces biased results for the correlation parameter. This paper also finds that the MSL estimator is biased for the bivariate Poisson-lognormal model, developed by Munkin and Trivedi (1999. “Simulated Maximum Likelihood Estimation of Multivariate Mixed-Poisson Regression Models, with Application.” The Econometrics Journal 2: 29–48). A simulation study is conducted, which shows that MSL leads to serious inferential biases, especially large when variance parameters in the true data generating process are small. The MSL estimator produces biases in the estimated marginal effects, conditional means and probabilities of count outcomes.

Keywords: Maximum Simulated Likelihood; Simulation Biases; Bivariate Models (search for similar items in EconPapers)
JEL-codes: C15 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/jem-2021-0003

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