Publication Date: September 1993
In this paper I develop models of the incidence and extent of external ﬁnancing crises of developing countries, which lead to multiperiod multinomial discrete choice and discrete/continuous econometric speciﬁcations with flexible correlation structures in the unobservables. I show that estimation of these models based on simulation methods has attractive statistical properties and is computationally tractable. Three such simulation estimation methods are exposited, analyzed theoretically, and used in practice: a method of smoothly simulation maximum likelihood (SSML) based on a smooth recursive conditioning simulator (SRC), a method of simulated scores (MSS) based on a Gibbs sampling simulator (GSS), and an MSS estimator based on the SRC simulator.
The data set used in this study comprises 93 developing countries observed through the 1970–1988 period and contains information on external ﬁnancing responses that are not available to investigators in the past. Moreover, previous studies of external debt problems had to rely on restrictive correlation structures in the unobservables to overcome otherwise intractable computational diﬀiculties. The ﬁndings show that being able for the ﬁrst time to allow for flexible correlation patterns in the unobservables through estimation by simulation has a substantial impact on the parameter estimates obtained from such models. This suggests that past empirical results in this literature require a substantial reevaluation.
Simulation estimation, Maximum simulated likelihood, Simulated scores, Gibbs sampling, External debt crises
See CFP: 871