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Economic Modeling and Inference - Bent Jesper Christensen

Hardcover Published: 8th May 2009
ISBN: 9780691120591
Number Of Pages: 488

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"Economic Modeling and Inference" takes econometrics to a new level by demonstrating how to combine modern economic theory with the latest statistical inference methods to get the most out of economic data. This graduate-level textbook draws applications from both microeconomics and macroeconomics, paying special attention to financial and labor economics, with an emphasis throughout on what observations can tell us about stochastic dynamic models of rational optimizing behavior and equilibrium. Bent Jesper Christensen and Nicholas Kiefer show how parameters often thought estimable in applications are not identified even in simple dynamic programming models, and they investigate the roles of extensions, including measurement error, imperfect control, and random utility shocks for inference. When all implications of optimization and equilibrium are imposed in the empirical procedures, the resulting estimation problems are often nonstandard, with the estimators exhibiting nonregular asymptotic behavior such as short-ranked covariance, superconsistency, and non-Gaussianity. Christensen and Kiefer explore these properties in detail, covering areas including job search models of the labor market, asset pricing, option pricing, marketing, and retirement planning. Ideal for researchers and practitioners as well as students, "Economic Modeling and Inference" uses real-world data to illustrate how to derive the best results using a combination of theory and cutting-edge econometric techniques.Covers identification and estimation of dynamic programming models Treats sources of error--measurement error, random utility, and imperfect control Features financial applications including asset pricing, option pricing, and optimal hedging Describes labor applications including job search, equilibrium search, and retirement Illustrates the wide applicability of the approach using micro, macro, and marketing examples

Industry Reviews

"Economic Modeling and Inference gives an excellent overview of dynamic modeling techniques in economics and fills an important gap among current textbooks. [It] is an excellent book, especially for graduate students in economics... [I]t is also a must for economists who need a refresher course in dynamic modeling ... [and] should also be on the bookshelf of practicing researchers interested in expanding the number of models used in their work."--Journal of the American Statistical Association "Economic Modeling and Inference offers a technically sophisticated grounding in the structural approach to analyzing data. The book does an excellent job of illustrating the wide range of questions that the empirical dynamic programming approach can tackle by explicitly bridging economic theory and econometrics... Books such as these will undoubtedly help the structural paradigm more successfully compete in the market for applied econometric methodologies."--Robert M. Sauer, Journal of Economic Literature

Preface xiiiChapter 1: Introduction 11.1 Expected Utility Theory 11.2 Uncertainty Aversion, Ellsberg and Allais 41.3 Structural Versus Reduced-Form Methods 61.4 Exercises 71.5 References 8Chapter 2: Components of a Dynamic Programming Model 92.1 Examples 92.2 Data Configurations 132.3 The Objective Function 162.4 The State Variables 172.5 The Control Variables 182.6 The Transition Distribution 192.7 The Curse of Dimensionality 212.8 The Curse of Degeneracy 222.9 Exercises 242.10 References 25Chapter 3: Discrete States and Controls 263.1 Solving DP Problems: Finite Horizon 263.2 Solving DP Problems: Infinite Horizon 303.2.1 The Method of Successive Approximation 323.2.2 The Method of Policy Iteration 343.3 Identification: A Preview 353.4 Exercises 373.5 References 37Chapter 4: Likelihood Functions for Discrete State/Control Models 384.1 Likelihood with Complete Observability 384.2 Measurement Error 454.3 Imperfect Control 514.4 Conclusions 544.5 Exercises 554.6 References 55Chapter 5: Random Utility Models 575.1 Introduction 575.2 The Value Function 595.3 A Binary Utility Shock 605.4 A Continuously Distributed Utility Shock 625.5 Choice Probabilities 655.6 Dynamic Continuous Random Utility 665.7 Exercises 695.8 References 70Chapter 6: Continuous States, Discrete Controls 716.1 Introduction 716.2 Transition Distributions and Utility 736.3 The Value Function and Backward Recursion 746.4 Example: Exercising an American Option 766.5 Infinite Horizon: Contraction and Forward Recursion 796.6 Example: Optimal Stopping in Discrete Time 836.7 Exercises 856.8 References 85Chapter 7: Econometric Framework for the Search Model 877.1 The Search Model 877.2 Likelihood: General Considerations 897.3 Likelihood: Specifics for Wage Data 947.3.1 Wage Data Alone--One Parameter 967.3.2 Wage Data--Two Parameters 977.3.3 Wage Data Alone--Offer Arrival Probability 997.4 Likelihood: Wage and Duration Data 1007.4.1 Wage and Duration Data--Two Parameters 1007.4.2 Wage and Duration Data--Three Parameters 1027.4.3 Wage and Duration Data--Gamma Distribution 1047.5 Exercises 1077.6 References 108Chapter 8: Exact Distribution Theory for the Job Search Model 1098.1 Introduction 1098.2 The Prototypal Search Model 1108.3 Alternative Economic Parametrizations 1158.4 Models for Joint Wage and Duration Data 1228.5 Conclusion 1278.6 Exercises 1288.7 References 128Chapter 9: Measurement Error in the Prototypal Job Search Model 1299.1 Introduction 1299.2 The Prototypal Search Model 1309.3 The Prototypal Model with Measurement Errors 1329.4 Characterizing the Distribution of Measurement Errors 1349.5 Estimation in the Prototypal Model with Measurement Errors 1369.6 Application to the SIPP Data Set 1399.7 Conclusions 1469.8 Exercises 1469.9 References 147Chapter 10: Asset Markets 14810.1 Introduction 14810.2 General Asset Pricing 14810.3 The Term Structure of Interest Rates 15010.4 Forward Contracts 15410.5 Futures Contracts 15610.6 Introduction to Options 16010.7 The Binomial Method 16210.8 Empirical Applications 16610.8.1 Time Series Properties 16710.8.2 Portfolio Models 17410.8.3 Time-Varying Volatility 18110.8.4 Term Structure Analysis 18410.9 Exercises 19110.10 References 191Chapter 11: Financial Options 19211.1 Introduction 19211.2 Financial Option Exercise and Job Search 19211.3 Multiple Finite-Horizon Options 19411.4 Markov Stock Prices 19611.5 Value Functions for American Options 19911.6 Option Price Data 20511.7 Testing Option Market Efficiency 20811.8 Exercises 21211.9 References 212Chapter 12: Retirement 21312.1 Introduction 21312.2 A Simple Retirement Model 21312.3 The Likelihood Function 21612.4 Longitudinal Data 22112.5 Regularizing the Likelihood 22412.6 Generalizations 23212.7 Alternative Models 23612.8 Application: The Joint Retirement of Married Couples 24012.9 Exercises 24212.10 References 243Chapter 13: Continuous States and Controls 24413.1 Introduction 24413.2 The Linear-Quadratic Model: Finite Horizon 24513.2.1 An Application: Macroeconomic Control 24713.2.2 Rational Expectations 24813.3 The Linear-Quadratic Model: Infinite Horizon 24913.3.1 Application: Macro Policy with Rational Expectations 25013.4 Estimation of Linear-Quadratic Models 25113.4.1 The Curse of Degeneracy 25113.4.2 Sources of Noise 25113.4.3 Measurement Error 25313.4.4 Imperfect Control 25313.4.5 Random Utility 25413.5 The General (Non-LQ) Case 25613.6 Smoothness: Euler Equations 26013.7 Discussion and Examples 26113.8 Random Utility in the General Case 26413.9 Exercises 26413.10 References 265Chapter 14: Continuous-Time Models 26614.1 Introduction 26614.2 Optimal Stopping in Continuous Time 26914.3 A Jump Process Application: Allocation of Time over Time 27014.4 Dynamic Consumption and Portfolio Choice 27414.5 Application: Changing Investment Opportunities 27814.6 Derivatives, Hedging, and Arbitrage Pricing 28114.7 Stochastic Volatility and Jumps 28914.8 The Term Structure of Interest Rates in Continuous Time 29814.9 Exercises 31014.10 References 310Chapter 15: Microeconomic Applications 31215.1 Introduction 31215.2 Bus Engine Replacement 31315.3 Aircraft Engine Maintenance 31415.4 Medical Treatment and Absenteeism 31615.5 Nuclear Power Plant Operation 31715.6 Fertility and Child Mortality 31915.7 Costs of Price Adjustment 32015.8 Schooling, Work, and Occupational Choice 32215.9 Renewal of Patents 32315.10 Marketing--Direct Mailing of Catalogs 32415.11 Scrapping Subsidies and Automobile Purchases 32615.12 On-the-Job Search and the Wage Distribution 32715.13 Exercises 32915.14 References 330Chapter 16: Macroeconomic Applications 33116.1 Consumption as a Random Walk 33116.2 Consumption and Asset Returns 33316.3 Dynamic Labor Demand 33416.4 Time Inconsistency of Optimal Plans 33616.5 Time to Build 33816.6 Nonseparable Utility 33916.7 Preferences of Monetary Authorities 34116.8 Dynamic Labor Supply 34216.9 Effects of U.S. Farm Subsidies 34516.10 Exercises 34616.11 References 346Chapter 17: Finance Application: Futures Hedging 34717.1 Hedging Strategies 34717.2 Self-Financing Trading Strategies 35017.3 Estimation 35317.4 Exercises 35917.5 References 359Chapter 18: Intertemporal Asset Pricing 36018.1 Introduction 36018.2 Prices and Returns 36118.3 Capital Asset Pricing Model 36218.4 Estimation 36318.5 A Structural Model 36518.6 Asset Pricing Puzzles 36918.7 Exercises 37618.8 References 376Chapter 19: Dynamic Equilibrium: The Search Model 37719.1 Introduction 37719.2 Homogeneous Equilibrium Search 37819.3 Data Distribution and Likelihood 38319.4 Panels with Partially Missing Observations 38919.4.1 The Contribution of Unemployment Duration 39019.4.2 The Contribution of Wages 39019.4.3 The Contribution of Employment Duration 39219.4.4 A Numerical Example 39419.5 Geometric Information Decomposition 39519.5.1 Destination State Information 40019.6 Data and Summary Statistics 40319.7 Empirical Results 40619.8 Conclusion 41419.9 Exercises 41519.10 References 415Chapter 20: Dynamic Equilibrium: Search Equilibrium Extensions 41620.1 Introduction 41620.2 Measurement Error in Wages 41620.3 Heterogeneity in Productivity: The Discrete Case 42020.4 Heterogeneity in Productivity: The Continuous Case 42420.5 Conclusion 42920.6 Exercises 42920.7 References 429Appendix: Brief Review of Statistical Theory 431A.1 Introduction 431A.2 Exponential Families 432A.3 Maximum Likelihood 434A.4 Classical Theory of Testing 437References 441Index 469

ISBN: 9780691120591
ISBN-10: 0691120595
Audience: Professional
Format: Hardcover
Language: English
Number Of Pages: 488
Published: 8th May 2009
Publisher: Princeton University Press
Country of Publication: US
Dimensions (cm): 23.5 x 15.2  x 3.3
Weight (kg): 0.82

Earn 274 Qantas Points
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