FIML Estimation of Rational Distributed Lag Structural Form Models

NBER Working Paper No. 77The article of record as published may be found at http://dx.doi.org/10.3386/w0077The Rational Distributed Lag Structural Form (RSF) representation of an econometric model is introduced and its relationship to several standard forms of representation is discussed. The FIML estimation problem for the RSF is then considered and formulated as a nonlinear, unconstrained optimization problem. A solution to the relation optimization problem is then obtained by an application of the Davidon-Fletcher-Powell variable metric method using simple first difference approximations for the necessary gradients. This approach requires a minimum of effort on the part of the model builder since there is no longer any need to analytically determine, and then program, the gradient expressions. The feasibility of the method is demonstrated with several examples