Efficient Particle MCMC with GMM Likelihood Representation

Franco Fabio
CEIS Research Paper
Particle Markov Chain Monte Carlo (PMCMC) is a widely used method to handle estimation problem in the context of nonlinear structural dynamic models whose likelihood function is analytically intractable. PMCMC can be constructed upon a GMM likelihood representation when one does not want to rely on the structural form of the measurement equation (Gallant et al 2016). It only requires to compute moment conditions available from the structural model. However, particle filter with GMM may suffer from high degeneracy of particle weights which severely affects the accuracy of Monte Carlo approximations and in turn Markov Chain Monte Carlo estimates. This work is concerned with revising particle GMM algorithm as proposed in Gallant et al in order to reduce the depletion problem. Estimation results of stochastic volatility models show that the efficient block sampling strategy as proposed in Doucet et al (2006) can outperform particle GMM and in turn deliver more reliable MCMC estimates. Auxiliary particle filter (Doucet et al, 2011) is also proposed as an alternative strategy to the block sampling approach. However, in the intended experiments it does not seem to be very effective. Thus some of the assumptions needed to estimate structural nonlinear state space models can be weakened and requiring only available moment conditions without affecting dramatically the conclusions.

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Number: 473
Keywords: Particle filter, Kalman filter, MCMC, Generalized Method of Moments, State Space, nonlinear Structural Dynamic model, Stochastic Volatility
JEL codes: C4,C8
Volume: 17
Issue: 9
Date: Monday, November 18, 2019
Revision Date: Monday, November 18, 2019