PPML Estimation of Dynamic Discrete Choice Models with Aggregate Shocks

This paper introduces a computationally efficient method for estimating structural parameters of dynamic discrete choice models with large choice sets. The method is based on Poisson pseudo maximum likelihood (PPML) regression, which is widely used in the international trade and migration literature to estimate the gravity equation. Unlike most of the existing methods in the literature, it does not require strong parametric assumptions on agents' expectations, thus it can accommodate macroeconomic and policy shocks. The regression requires count data as opposed to choice probabilities; therefore it can handle sparse decision transition matrices caused by small sample sizes. As an example application, the paper estimates sectoral worker mobility in the United States.

Bibliographic Details

Main Author:	Artuc, Erhan
Language:	English en_US
Published:	World Bank, Washington, DC 2013-06
Subjects:	AGRICULTURE, ASYMPTOTICALLY EQUIVALENT, BENCHMARK, CALIBRATION, COEFFICIENTS, CONSISTENT ESTIMATES, CONSUMER PRICE INDEX, CUMULATIVE DISTRIBUTION FUNCTION, DECISION MAKING, DEPENDENT VARIABLE, DESCRIPTIVE STATISTICS, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DEVELOPMENT RESEARCH, DISCOUNT RATE, DISTRIBUTIONAL ASSUMPTIONS, DYNAMIC MODELS, ECONOMETRICS, ECONOMICS LITERATURE, ECONOMICS RESEARCH, EQUATIONS, ERROR, ESTIMATORS, EXPECTED VALUE, EXPECTED VALUES, FIXED EFFECTS, INSTRUMENTAL VARIABLES, INTERNATIONAL TRADE, JOURNAL OF ECONOMETRICS, LARGE NUMBER, LIKELIHOOD FUNCTION, LINEAR REGRESSION, LINEAR TIME, LOGARITHMS, LOGIT ANALYSIS, MACROECONOMIC SHOCKS, MARGINAL PRODUCTS, MATRICES, MATRIX, MAXIMUM LIKELIHOOD, MAXIMUM LIKELIHOOD ESTIMATION, MODELING, MONTE CARLO SIMULATION, NUMBER OF OBSERVATIONS, NUMBER OF PARAMETERS, OPEN ECONOMY, ORTHOGONALITY, PANEL DATA, PERIOD T, PRECISION, PROBABILITIES, PROBABILITY, PROBABILITY DENSITY, PROBABILITY DENSITY FUNCTION, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, REGRESSION ANALYSIS, REGRESSION EQUATION, REGRESSION EQUATIONS, RESEARCH WORKING PAPERS, RISK NEUTRAL, SAMPLE SIZE, SCENARIOS, SIMULATION, SIMULATIONS, SMALL SAMPLE, STANDARD DEVIATION, STANDARD ERRORS, STATIONARY PROCESSES, STRUCTURAL ANALYSIS, STRUCTURAL PARAMETERS, TIME PERIOD, TIME SERIES, TIME TRENDS, TRADE POLICY, UTILITY FUNCTION, WAGES, WEIGHTING, Poisson pseudo maximum likelihood, labor mobility, migration, discrete choice models, gravity equation,
Online Access:	http://documents.worldbank.org/curated/en/2013/06/17849032/ppml-estimation-dynamic-discrete-choice-models-aggregate-shocks https://hdl.handle.net/10986/15841
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