Indirect inference for locally stationary models

David T. Frazier and Bonsoo Koo

Journal of Econometrics, 2021, vol. 223, issue 1, 1-27

Abstract: We propose the use of indirect inference estimation to conduct inference in complex locally stationary models. We develop a local indirect inference algorithm and establish the asymptotic properties of the proposed estimator. Due to the nonparametric nature of locally stationary models, the resulting indirect inference estimator exhibits nonparametric rates of convergence. We validate our methodology with simulation studies in the confines of a locally stationary moving average model and a new locally stationary multiplicative stochastic volatility model. Using this indirect inference methodology and the new locally stationary volatility model, we obtain evidence of non-linear, time-varying volatility trends for monthly returns on several Fama–French portfolios.

Keywords: Semiparametric; Locally stationary; Indirect inference; State–space models (search for similar items in EconPapers)
JEL-codes: C13 C14 C22 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:223:y:2021:i:1:p:1-27

DOI: 10.1016/j.jeconom.2020.08.004

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