Nonparametric identification of dynamic models with unobserved state variables

Yingyao Hu and Matthew Shum ()

No CWP13/08, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract:

We consider the identification of a Markov process {W t , X t *} for t=1,2,...,T when only {W t } for t=1, 2,..,T is observed. In structural dynamic models, W t denotes the sequence of choice variables and observed state variables of an optimizing agent, while X t * denotes the sequence of serially correlated state variables. The Markov setting allows the distribution of the unobserved state variable X t * to depend on W t-1 and X t-1 *. We show that the joint distribution of (W t , X t *, W t-1 , X t-1 *) is identified from the observed distribution of (W t+1 , W t , W t-1 , W t-2 , W t-3 ) under reasonable assumptions. Identification of the joint distribution of (W t , X t *, W t-1 , X t-1 *) is a crucial input in methodologies for estimating dynamic models based on the "conditional-choice-probability (CCP)" approach pioneered by Hotz and Miller.

Date: 2008-05-28
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Nonparametric identification of dynamic models with unobserved state variables (2012)
Working Paper: Nonparametric Identification of Dynamic Models with Unobserved State Variables (2008)
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