Estimating the rational expectations model of speculative storage : a Monte Carlo comparison of three simulation estimators

Michaelides, Alexander and Ng, Serena (2000) Estimating the rational expectations model of speculative storage : a Monte Carlo comparison of three simulation estimators. Journal of Econometrics, 96 (2). pp. 231-266. ISSN 0304-4076

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Abstract

The non-negativity constraint on inventories imposed on the rational expectations theory of speculative storage implies that the conditional mean and variance of commodity prices are non-linear in lagged prices and have a kink at a threshold point. In this paper, the structural parameters of this model are estimated using three simulation-based estimators. In a Monte Carlo experiment, the finite sample properties of the simulated methods of moments estimator of Duffie and Singleton (1993, Econometrica 61 (4), 929–952) the indirect inference estimator of Gourieroux et al. (1993, Journal of Applied Economterics 8, S85–S118) and the efficient method of moments estimator of Gallant and Tauchen (1996, Econometric Theory 12, 657–681) are assessed. Exploiting the invariant distribution implied by the theory allows us to evaluate the error induced by simulations. Our results show that the estimators differ in their sensitivity to the sample size, the number of simulations, choice of auxiliary models, and computation demands. For some estimators, the test for overidentifying restrictions exhibit significant size distortions in small samples. Overall, while the simulation estimators have small bias, they are less efficient than pseudo-maximum likelihood (PMLE). Hence for the small sample sizes considered, the simulation estimators are still inferior to the PMLE estimates in a mean-squared sense.

Item Type:	Article
Official URL:	http://www.elsevier.com/wps/find/journaldescriptio...
Additional Information:	Copyright © 2000 Elsevier Science S.A. LSE has developed LSE Research Online so that users may access research output of the School. Copyright © and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (http://eprints.lse.ac.uk) of the LSE Research Online website. A persistent link to the article is available at http://dx.doi.org/10.1016/S0304-4076(99)00058-5
Divisions:	Financial Markets Group Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture G - Financial Economics > G1 - General Financial Markets B - Schools of Economic Thought and Methodology > B4 - Economic Methodology C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C15 - Statistical Simulation Methods; Monte Carlo Methods; Bootstrap Methods
Date Deposited:	29 Jun 2006
Last Modified:	11 Dec 2024 22:15
URI:	http://eprints.lse.ac.uk/id/eprint/198

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