Through the Looking Glass: Indirect Inference via Simple Equilibria

Laurent Calvet and Veronika Czellar
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Veronika Czellar: EM - EMLyon Business School

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Abstract: This paper proposes an indirect inference (Gourieroux, Monfort and Renault, 1993; Smith, 1993) estimation method for a large class of dynamic equilibrium models. Our approach is based on the observation that the econometric structure of these systems naturally generates auxiliary equilibria that can serve as building blocks for estimation. We use this insight to develop an accurate estimator for the long-run risk model of Bansal and Yaron (2004). We demonstrate the accuracy of our method by Monte Carlo simulation and estimate the long-run risk model on U.S. data. We also illustrate the good performance of the methodology on an asset pricing model with investor learning.

Keywords: Hidden Markov model; Long-run risk; Learning; Value at risk; Indirect inference; Particle filters (search for similar items in EconPapers)
Date: 2015-04-01
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Citations: View citations in EconPapers (10)

Published in Journal of Econometrics, 2015, 185 (2), 343-358 p. ⟨10.1016/j.jeconom.2014.11.003⟩

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Related works:
Journal Article: Through the looking glass: Indirect inference via simple equilibria (2015)
Working Paper: Through the Looking Glass: Indirect Inference via Simple Equilibria (2014)
Working Paper: Through the Looking Glass: Indirect Inference via Simple Equilibria (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02313236

DOI: 10.1016/j.jeconom.2014.11.003

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