Economics at your fingertips  

Moment Inequalities in the Context of Simulated and Predicted Variables

Hiroaki Kaido (), Jiaxuan Li and Marc Rysman ()

Papers from

Abstract: This paper explores the effects of simulated moments on the performance of inference methods based on moment inequalities. Commonly used confidence sets for parameters are level sets of criterion functions whose boundary points may depend on sample moments in an irregular manner. Due to this feature, simulation errors can affect the performance of inference in non-standard ways. In particular, a (first-order) bias due to the simulation errors may remain in the estimated boundary of the confidence set. We demonstrate, through Monte Carlo experiments, that simulation errors can significantly reduce the coverage probabilities of confidence sets in small samples. The size distortion is particularly severe when the number of inequality restrictions is large. These results highlight the danger of ignoring the sampling variations due to the simulation errors in moment inequality models. Similar issues arise when using predicted variables in moment inequalities models. We propose a method for properly correcting for these variations based on regularizing the intersection of moments in parameter space, and we show that our proposed method performs well theoretically and in practice.

New Economics Papers: this item is included in nep-ecm
Date: 2018-04
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Latest version (application/pdf)

Related works:
Working Paper: Moment inequalities in the context of simulated and predicted variables (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Papers from
Bibliographic data for series maintained by arXiv administrators ().

Page updated 2019-04-18
Handle: RePEc:arx:papers:1804.03674