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Higher-order properties of approximate estimators

Author:
Kristensen, Dennis, Salanié, Bernard
Source:
Journal of econometrics 2017 v.198 no.2 pp. 189-208
ISSN:
0304-4076
Subject:
Monte Carlo method, econometric models, economic analysis, economic theory, logit analysis, variance
Abstract:
Many modern estimation methods in econometrics approximate an objective function, for instance, through simulation or discretization. These approximations typically affect both bias and variance of the resulting estimator. We first provide a higher-order expansion of such “approximate” estimators that takes into account the errors due to the use of approximations. We show how a Newton–Raphson adjustment can reduce the impact of approximations. Then we use our expansions to develop inferential tools that take into account approximation errors: we propose adjustments of the approximate estimator that remove its first-order bias and adjust its standard errors. These corrections apply to a class of approximate estimators that includes all known simulation-based procedures. A Monte Carlo simulation on the mixed logit model shows that our proposed adjustments can yield significant improvements at a low computational cost.
Agid:
6107831