Likelihood Induced by Moment Functions Using Particle Filter: a Comparison of Particle GMM and Standard MCMC Methods

Franco Fabio
CEIS Research Paper
Particle filtering is a useful statistical tool which can be used to make inference on the latent variables and the structural parameters of state space models by employing it inside MCMC algorithms (Flury and Shephard, 2011). It only relies on two assumptions (Gordon et al, 1993): a: The ability to simulate from the dynamic of the model; b: The predictive measurement density can be computed. In practice the second assumption may not be obvious and implementations of particle filter can become difficult to conduct. Gallant, Giacomini and Ragusa (2016) have recently developed a particle filter which does not rely on the structural form of the measurement equation. This method uses a set of moment conditions to induce the likelihood function of a structural model under a GMM criteria. The semiparametric structure allows to use particle filtering where the standard techniques are not applicable or difficult to implement. On the other hand, the GMM representation is less efficient than the standard technique and in some cases it can affect the proper functioning of particle filter and in turn deliver poor estimates. The contribution of this paper is to provide a comparison between the standard techniques, as Kalman filter and standard bootstrap particle filter, and the method proposed by Gallant et al (2016) in order to measure the performance of particle filter with GMM representation.

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Number: 477
Keywords: Bootstrap particle filter, GMM likelihood representation, Metropolis-Hastings algorithm, Kalman filter, nonlinear/non-Gaussian state space models.
JEL codes: C4,C8
Volume: 17
Issue: 10
Date: Wednesday, December 4, 2019
Revision Date: Wednesday, December 4, 2019