The Method of Simulated Scores for the Estimation of LDV Models with an Application to External Debt Crisis
Vassilis Hajivassiliou () and
No 967, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University
The method of simulated scores (MSS) is presented for estimating LDV models with flexible correlation structure in the unobservables. We propose simulators that are continuous in the unknown parameter vectors, and hence standard optimization methods can be used to compute the MSS estimators that employ these simulators. We establish consistency and asymptotic normality of the MSS estimators and derive suitable rates at which the number of simulations must use if biased simulators are used. The estimation method is applied to analyze a model in which the incidence and the extent of debt repayments problems of LDC's are viewed as optimized choices of the central authorities of the countries in a framework of credit rationing. The econometric implementation of the resulting multi-period probit and Tobit models avoids the need for high dimensional integration. Our findings show that the restrictive error structures imposed by past studies may have led to unreliable econometric results.
Keywords: Simulation model; asymptotic theory; censored model (search for similar items in EconPapers)
JEL-codes: C24 C15 C13 (search for similar items in EconPapers)
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Published in Econometrica (July 1998), 66(4): 863-896
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Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:967
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