Constrained Indirect Estimation

Giorgio Calzolari, Gabriele Fiorentini and Enrique Sentana

The Review of Economic Studies, 2004, vol. 71, issue 4, 945-973

Abstract: We develop generalized indirect estimation procedures that handle equality and inequality constraints on the auxiliary model parameters by extracting information from the relevant multipliers, and compare their asymptotic efficiency to maximum likelihood. We also show that, regardless of the validity of the restrictions, the asymptotic efficiency of such estimators can never decrease by explicitly considering the multipliers associated with additional equality constraints. Furthermore, we discuss the variety of effects on efficiency that can result from imposing constraints on a previously unrestricted model. As an example, we consider a stochastic volatility process estimated through a garch model with Gaussian or t distributed errors. Copyright 2004, Wiley-Blackwell.

Date: 2004
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