ON EFFICIENT SIMULATIONS IN DYNAMIC MODELS

Paper number: 95/21

Year: 1995

Paper Category: Discussion Paper

Authors

Karim M Abadir*
Department of Economics, University of Exeter

Abstract

Ways of improving the efficiency of Monte-Carlo (MC) techniques are studied for dynamic models. Such models cause the conventinal Antithetic Variate (AV) technique to fail, and will be proved to reduce the benefit from using Control Variates with nearly non-stationary series. This paper suggest modifications of the two conventional variance reduction techniques to enhance their efficiency. New classes of AV's are also proposed. Methods of reordering residuals are found to do less well than others wich rely on changing signs in the spirit of the traditional AV. Then, unconventional applications of these techniques of MC work for nearly nonstationary series. It generates econometric estimators at one and a half times the speed of conventional MC.

JEL Classification numbers: C00.
Keywords: Dynamic models, Monte-Carlo (MC), Variance Reduction Technique (VRT), Antithetic Variate (AV), Control Variate (CV), Efficiency gain (EG), Response Surface (RS).

Address for correspondence:
Karim M Abadir,
Department of Economics
University of Exeter
Amory Building
Rennes Drive
EXETER EX4 4RJ,
UK

Tel: UK+01392+263244 (or 263200)
Fax: UK+01392+263242
E-mail: K.M.Abadir@exeter.ac.uk