Economic Modeling and Inference

Name: Economic Modeling and Inference
Brand: Princeton University Press
Price: 85.49 EUR
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Bent Jesper Christensen Nicholas M. Kiefer(Author)

Princeton University Press

1st Edition

Published on 5. July 2021

488 pages

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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

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Content

Cover Page
Half-title Page
Title Page
Copyright Page
Dedication Page
Contents
Preface
1. Introduction
1.1 Expected Utility Theory
1.2 Uncertainty Aversion, Ellsberg and Allais
1.3 Structural Versus Reduced-Form Methods
1.4 Exercises
1.5 References
2. Components of a Dynamic Programming Model
2.1 Examples
2.2 Data Configurations
2.3 The Objective Function
2.4 The State Variables
2.5 The Control Variables
2.6 The Transition Distribution
2.7 The Curse of Dimensionality
2.8 The Curse of Degeneracy
2.9 Exercises
2.10 References
3. Discrete States and Controls
3.1 Solving DP Problems: Finite Horizon
3.2 Solving DP Problems: Infinite Horizon
3.2.1 The Method of Successive Approximation
3.2.2 The Method of Policy Iteration
3.3 Identification: A Preview
3.4 Exercises
3.5 References
4. Likelihood Functions for Discrete State/Control Models
4.1 Likelihood with Complete Observability
4.2 Measurement Error
4.3 Imperfect Control
4.4 Conclusions
4.5 Exercises
4.6 References
5. Random Utility Models
5.1 Introduction
5.2 The Value Function
5.3 A Binary Utility Shock
5.4 A Continuously Distributed Utility Shock
5.5 Choice Probabilities
5.6 Dynamic Continuous Random Utility
5.7 Exercises
5.8 References
6. Continuous States, Discrete Controls
6.1 Introduction
6.2 Transition Distributions and Utility
6.3 The Value Function and Backward Recursion
6.4 Example: Exercising an American Option
6.5 Infinite Horizon: Contraction and Forward Recursion
6.6 Example: Optimal Stopping in Discrete Time
6.7 Exercises
6.8 References
7. Econometric Framework for the Search Model
7.1 The Search Model
7.2 Likelihood: General Considerations
7.3 Likelihood: Specifics for Wage Data
7.3.1 Wage Data Alone-One Parameter
7.3.2 Wage Data-Two Parameters
7.3.3 Wage Data Alone-Offer Arrival Probability
7.4 Likelihood: Wage and Duration Data
7.4.1 Wage and Duration Data-Two Parameters
7.4.2 Wage and Duration Data-Three Parameters
7.4.3 Wage and Duration Data-Gamma Distribution
7.5 Exercises
7.6 References
8. Exact Distribution Theory for the Job Search Model
8.1 Introduction
8.2 The Prototypal Search Model
8.3 Alternative Economic Parametrizations
8.4 Models for Joint Wage and Duration Data
8.5 Conclusion
8.6 Exercises
8.7 References
9. Measurement Error in the Prototypal Job Search Model
9.1 Introduction
9.2 The Prototypal Search Model
9.3 The Prototypal Model with Measurement Errors
9.4 Characterizing the Distribution of Measurement Errors
9.5 Estimation in the Prototypal Model with Measurement Errors
9.6 Application to the SIPP Data Set
9.7 Conclusions
9.8 Exercises
9.9 References
10. Asset Markets
10.1 Introduction
10.2 General Asset Pricing
10.3 The Term Structure of Interest Rates
10.4 Forward Contracts
10.5 Futures Contracts
10.6 Introduction to Options
10.7 The Binomial Method
10.8 Empirical Applications
10.8.1 Time Series Properties
10.8.2 Portfolio Models
10.8.3 Time-Varying Volatility
10.8.4 Term Structure Analysis
10.9 Exercises
10.10 References
11. Financial Options
11.1 Introduction
11.2 Financial Option Exercise and Job Search
11.3 Multiple Finite-Horizon Options
11.4 Markov Stock Prices
11.5 Value Functions for American Options
11.6 Option Price Data
11.7 Testing Option Market Efficiency
11.8 Exercises
11.9 References
12. Retirement
12.1 Introduction
12.2 A Simple Retirement Model
12.3 The Likelihood Function
12.4 Longitudinal Data
12.5 Regularizing the Likelihood
12.6 Generalizations
12.7 Alternative Models
12.8 Application: The Joint Retirement of Married Couples
12.9 Exercises
12.10 References
13. Continuous States and Controls
13.1 Introduction
13.2 The Linear-Quadratic Model: Finite Horizon
13.2.1 An Application: Macroeconomic Control
13.2.2 Rational Expectations
13.3 The Linear-Quadratic Model: Infinite Horizon
13.3.1 Application: Macro Policy with Rational Expectations
13.4 Estimation of Linear-Quadratic Models
13.4.1 The Curse of Degeneracy
13.4.2 Sources of Noise
13.4.3 Measurement Error
13.4.4 Imperfect Control
13.4.5 Random Utility
13.5 The General (Non-LQ) Case
13.6 Smoothness: Euler Equations
13.7 Discussion and Examples
13.8 Random Utility in the General Case
13.9 Exercises
13.10 References
14. Continuous-Time Models
14.1 Introduction
14.2 Optimal Stopping in Continuous Time
14.3 A Jump Process Application: Allocation of Time over Time
14.4 Dynamic Consumption and Portfolio Choice
14.5 Application: Changing Investment Opportunities
14.6 Derivatives, Hedging, and Arbitrage Pricing
14.7 Stochastic Volatility and Jumps
14.8 The Term Structure of Interest Rates in Continuous Time
14.9 Exercises
14.10 References
15. Microeconomic Applications
15.1 Introduction
15.2 Bus Engine Replacement
15.3 Aircraft Engine Maintenance
15.4 Medical Treatment and Absenteeism
15.5 Nuclear Power Plant Operation
15.6 Fertility and Child Mortality
15.7 Costs of Price Adjustment
15.8 Schooling, Work, and Occupational Choice
15.9 Renewal of Patents
15.10 Marketing-Direct Mailing of Catalogs
15.11 Scrapping Subsidies and Automobile Purchases
15.12 On-the-Job Search and the Wage Distribution
15.13 Exercises
15.14 References
16. Macroeconomic Applications
16.1 Consumption as a Random Walk
16.2 Consumption and Asset Returns
16.3 Dynamic Labor Demand
16.4 Time Inconsistency of Optimal Plans
16.5 Time to Build
16.6 Nonseparable Utility
16.7 Preferences of Monetary Authorities
16.8 Dynamic Labor Supply
16.9 Effects of U.S. Farm Subsidies
16.10 Exercises
16.11 References
17. Finance Application: Futures Hedging
17.1 Hedging Strategies
17.2 Self-Financing Trading Strategies
17.3 Estimation
17.4 Exercises
17.5 References
18. Intertemporal Asset Pricing
18.1 Introduction
18.2 Prices and Returns
18.3 Capital Asset Pricing Model
18.4 Estimation
18.5 A Structural Model
18.6 Asset Pricing Puzzles
18.7 Exercises
18.8 References
19. Dynamic Equilibrium: The Search Model
19.1 Introduction
19.2 Homogeneous Equilibrium Search
19.3 Data Distribution and Likelihood
19.4 Panels with Partially Missing Observations
19.4.1 The Contribution of Unemployment Duration
19.4.2 The Contribution of Wages
19.4.3 The Contribution of Employment Duration
19.4.4 A Numerical Example
19.5 Geometric Information Decomposition
19.5.1 Destination State Information
19.6 Data and Summary Statistics
19.7 Empirical Results
19.8 Conclusion
19.9 Exercises
19.10 References
20. Dynamic Equilibrium: Search Equilibrium Extensions
20.1 Introduction
20.2 Measurement Error in Wages
20.3 Heterogeneity in Productivity: The Discrete Case
20.4 Heterogeneity in Productivity: The Continuous Case
20.5 Conclusion
20.6 Exercises
20.7 References
Appendix: Brief Review of Statistical Theory
A.1 Introduction
A.2 Exponential Families
A.3 Maximum Likelihood
A.4 Classical Theory of Testing
References
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Economic Modeling and Inference

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