Estimation of Multi-market Fix-Price Models: An Application of Pseudo Maximum Likelihood Methods

Guy Laroque and Bernard Salanié

Econometrica, 1989, vol. 57, issue 4, 831-60

Abstract: The past decade has seen the econometric implementation of macroeconomic multimarket fix-price models for a number of European countries. The procedure in use, the full information maximum likelihood method, unfortunately becomes very cumbersome and seems out of reach when additional features are incorporated in the model (disaggregation into micro markets, opinion surveys ...). One purpose of the present work is to prove the fruitfulness of the following estimation strategy: use Monte Carlo simulations to compute the first- and second-order moments of the endogenous variables, and maximize a resulting pseudo likelihood function to estimate the parameters. Copyright 1989 by The Econometric Society.

Date: 1989
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