Efficient estimation of general dynamic models with a continuum of moment conditions |
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Authors: | Marine Carrasco Mikhail Chernov Jean-Pierre Florens Eric Ghysels |
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Institution: | aUniversité de Montréal, Montréal, QC, Canada H3C3J7;bColumbia Graduate School of Business, New York, NY 10027, USA;cUniversity of Toulouse, 31000 Toulouse, France;dUniversity of North Carolina, Chapel Hill, NC 27599, USA |
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Abstract: | There are two difficulties with the implementation of the characteristic function-based estimators. First, the optimal instrument yielding the ML efficiency depends on the unknown probability density function. Second, the need to use a large set of moment conditions leads to the singularity of the covariance matrix. We resolve the two problems in the framework of GMM with a continuum of moment conditions. A new optimal instrument relies on the double indexing and, as a result, has a simple exponential form. The singularity problem is addressed via a penalization term. We introduce HAC-type estimators for non-Markov models. A simulated method of moments is proposed for non-analytical cases. |
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Keywords: | Characteristic function Efficient estimation Affine models |
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