Higher-order properties of approximate estimators

Dennis Kristensen and Bernard Salanié

Journal of Econometrics, 2017, vol. 198, issue 2, 189-208

Abstract: Many modern estimation methods in econometrics approximate an objective function, for instance, through simulation or discretization. These approximations typically affect both bias and variance of the resulting estimator. We first provide a higher-order expansion of such “approximate” estimators that takes into account the errors due to the use of approximations. We show how a Newton–Raphson adjustment can reduce the impact of approximations. Then we use our expansions to develop inferential tools that take into account approximation errors: we propose adjustments of the approximate estimator that remove its first-order bias and adjust its standard errors. These corrections apply to a class of approximate estimators that includes all known simulation-based procedures. A Monte Carlo simulation on the mixed logit model shows that our proposed adjustments can yield significant improvements at a low computational cost.

Keywords: Extremum estimators; Numerical approximation; Simulation-based estimation; Higher-order expansion; Bias adjustment (search for similar items in EconPapers)
JEL-codes: C13 C15 C63 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Higher-order properties of approximate estimators (2013)
Working Paper: Higher-order properties of approximate estimators (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:198:y:2017:i:2:p:189-208

DOI: 10.1016/j.jeconom.2016.10.008

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