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Parameter Driven Multi-state Duration Models: Simulated vs. Approximate Maximum Likelihood Estimation

Author

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  • André A. Monteiro

    (VU University Amsterdam, and University of Western Australia)

Abstract

Likelihood based inference for multi-state latent factor intensity models is hindered by the fact that exact closed-form expressions for the implied data density are not available. This is a common and well-known problem for most parameter driven dynamic econometric models. This paper reviews, adapts and compares three different approaches for solving this problem. For evaluating the likelihood, two of the methods rely on Monte Carlo integration with importance sampling techniques. The third method, in contrast, is based on fully deterministic numerical procedures. A Monte Carlo study is conducted to illustrate the use of each method, and assess its corresponding finite sample performance.

Suggested Citation

  • André A. Monteiro, 2008. "Parameter Driven Multi-state Duration Models: Simulated vs. Approximate Maximum Likelihood Estimation," Tinbergen Institute Discussion Papers 08-021/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20080021
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    File URL: https://papers.tinbergen.nl/08021.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Multi-state Duration models; Parameter Driven models; Simulated Maximum Likelihood; Importance Sampling;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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