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The Methodology and Practice of EconometricsA Festschrift in Honour of David F. Hendry$
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Jennifer Castle and Neil Shephard

Print publication date: 2009

Print ISBN-13: 9780199237197

Published to Oxford Scholarship Online: September 2009

DOI: 10.1093/acprof:oso/9780199237197.001.0001

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On Efficient Simulations in Dynamic Models *

On Efficient Simulations in Dynamic Models *

Chapter:
(p.268) 11 On Efficient Simulations in Dynamic Models*
Source:
The Methodology and Practice of Econometrics
Author(s):

Karim M. Abadir

Paolo Paruolo

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199237197.003.0011

This chapter studies ways of improving the efficiency of Monte-Carlo (MC) techniques for dynamic models. Such models cause the conventional Antithetic Variate (AV) technique to fail, and will be proved to reduce the benefit from using Control Variates with nearly nonstationary series. The chapter suggests modifications of the two conventional variance reduction techniques to enhance their efficiency. New classes of AVs are also proposed. Methods of reordering innovations are found to do less well than others which rely on changing some signs in the spirit of the traditional AV. Numerical and analytical calculations are given to investigate the features of the proposed techniques.

Keywords:   dynamic models, Monte-Carlo, Variance Reduction Technique, Antithetic Variate, Control Variate, innovations

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