Indirect inference is a simulation-based method for estimating the parameters of economic models. Its hallmark is the use of an auxiliary model to capture aspects of the data upon which to base the estimation. The parameters of the auxiliary model can be estimated using either the observed data or data simulated from the economic model. Indirect inference chooses the parameters of the economic model so that these two estimates of the parameters of the auxiliary model are as close as possible. The auxiliary model need not be correctly specified; when it is, indirect inference is equivalent to maximum likelihood.
KeywordsAuxiliary models Bayesian inference Criterion functions Discrete-choice models Dynamic stochastic general equilibrium (DSGE) models Estimation Lagrange multipliers Likelihood Likelihood ratios Linear probability models Maximum likelihood Models Probability density functions Reduced-form models Seminonparametric (SNP) models Simulated moments estimation Simultaneous equations Vector autoregressions Wald test
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