### Abstract

This chapter describes a simulated method of moments estimator that is implemented by choosing the vector valued moment function to be the expectation under the structural model of the score function of an auxiliary model, where the parameters of the auxiliary model are eliminated by replacing them with their quasi-maximum likelihood estimates. This leaves a moment vector depending only on the parameters of the structural model. Structural parameter estimates are those parameter values that put the moment vector as closely to zero as possible in a suitable generalized method of moments metric. This methodology can also be interpreted as a practical computational strategy for implementing indirect inference. One argues that considerations from statistical science dictate that the auxiliary model should approximate the true data-generating process as closely as possible and show that using the seminonparametric model is one means to this end. When the view of close approximation is accepted in implementation, the methodology described here is usually referred to as Efficient Method of Moments in the literature because the estimator is asymptotically as efficient as maximum likelihood under correct specification and the detection of model error is assured under incorrect specification.

Original language | English (US) |
---|---|

Title of host publication | Handbook of Financial Econometrics, Vol 1 |

Publisher | Elsevier Inc. |

Pages | 427-477 |

Number of pages | 51 |

ISBN (Print) | 9780444508973 |

DOIs | |

State | Published - Dec 1 2010 |

### Fingerprint

### All Science Journal Classification (ASJC) codes

- Economics, Econometrics and Finance(all)

### Cite this

*Handbook of Financial Econometrics, Vol 1*(pp. 427-477). Elsevier Inc.. https://doi.org/10.1016/B978-0-444-50897-3.50011-0

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*Handbook of Financial Econometrics, Vol 1.*Elsevier Inc., pp. 427-477. https://doi.org/10.1016/B978-0-444-50897-3.50011-0

**Simulated Score Methods and Indirect Inference for Continuous-time Models.** / Gallant, A. Ronald; Tauchen, George.

Research output: Chapter in Book/Report/Conference proceeding › Chapter

TY - CHAP

T1 - Simulated Score Methods and Indirect Inference for Continuous-time Models

AU - Gallant, A. Ronald

AU - Tauchen, George

PY - 2010/12/1

Y1 - 2010/12/1

N2 - This chapter describes a simulated method of moments estimator that is implemented by choosing the vector valued moment function to be the expectation under the structural model of the score function of an auxiliary model, where the parameters of the auxiliary model are eliminated by replacing them with their quasi-maximum likelihood estimates. This leaves a moment vector depending only on the parameters of the structural model. Structural parameter estimates are those parameter values that put the moment vector as closely to zero as possible in a suitable generalized method of moments metric. This methodology can also be interpreted as a practical computational strategy for implementing indirect inference. One argues that considerations from statistical science dictate that the auxiliary model should approximate the true data-generating process as closely as possible and show that using the seminonparametric model is one means to this end. When the view of close approximation is accepted in implementation, the methodology described here is usually referred to as Efficient Method of Moments in the literature because the estimator is asymptotically as efficient as maximum likelihood under correct specification and the detection of model error is assured under incorrect specification.

AB - This chapter describes a simulated method of moments estimator that is implemented by choosing the vector valued moment function to be the expectation under the structural model of the score function of an auxiliary model, where the parameters of the auxiliary model are eliminated by replacing them with their quasi-maximum likelihood estimates. This leaves a moment vector depending only on the parameters of the structural model. Structural parameter estimates are those parameter values that put the moment vector as closely to zero as possible in a suitable generalized method of moments metric. This methodology can also be interpreted as a practical computational strategy for implementing indirect inference. One argues that considerations from statistical science dictate that the auxiliary model should approximate the true data-generating process as closely as possible and show that using the seminonparametric model is one means to this end. When the view of close approximation is accepted in implementation, the methodology described here is usually referred to as Efficient Method of Moments in the literature because the estimator is asymptotically as efficient as maximum likelihood under correct specification and the detection of model error is assured under incorrect specification.

UR - http://www.scopus.com/inward/record.url?scp=84864722255&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84864722255&partnerID=8YFLogxK

U2 - 10.1016/B978-0-444-50897-3.50011-0

DO - 10.1016/B978-0-444-50897-3.50011-0

M3 - Chapter

AN - SCOPUS:84864722255

SN - 9780444508973

SP - 427

EP - 477

BT - Handbook of Financial Econometrics, Vol 1

PB - Elsevier Inc.

ER -