Abstract for: Estimation of Unknown Parameters in Dynamic Models Using the Method of Simulated Moments (MSM)

We introduce the Method of Simulated Moments (MSM) for estimating unknown parameters in dynamic models. The MSM is useful when there are empirical data related to the behavior of different entities and error terms do not follow any well-established distribution. Statistical moments such as mean and variance of empirical data can be matched against the moments of model-generated data in order to estimate some structural parameters of the model. The major value of the MSM for estimating dynamic models is in its flexibility to be used with any type of data, including cross-sectional data, to estimate dynamic models.