John F. Geweke
Michael P. Keane
David E. Runkle - Senior Economist
Published July 1, 1994
Statistical inference in multinomial multiperiod probit models has been hindered in the past by the high dimensional numerical integrations necessary to form the likelihood functions, posterior distributions, or moment conditions in these models. We describe three alternative approaches to inference that circumvent the integration problem: Bayesian inference using Gibbs sampling and data augmentation to compute posterior moments, simulated maximum likelihood (SML) estimation using the GHK recursive probability simulator, and method of simulated moment (MSM) estimation using the GHK simulator. We perform a set of Monte-Carlo experiments to compare the performance of these approaches. Although all the methods perform reasonably well, some important differences emerge. The root mean square errors (RMSEs) of the SML parameter estimates around the data generating values exceed those of the MSM estimates by 21 percent on average, while the RMSEs of the MSM estimates exceed those of the posterior parameter means obtained via agreement via Gibbs sampling by 18 percent on average. While MSM produces a good agreement between empirical RMSEs and asymptotic standard errors, the RMSEs of the SML estimates exceed the asymptotic standard errors by 28 percent on average. Also, the SML estimates of serial correlation parameters exhibit significant downward bias.
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