Tuesday, November 8, 2016

Monte Carlo Simulation Basics, I: Historical Notes

Monte Carlo (MC) simulation provides us with a very powerful tool for solving all sorts of problems. In classical econometrics, we can use it to explore the properties of the estimators and tests that we use. More specifically, MC methods enable us to mimic (computationally) the sampling distributions of estimators and test statistics in situations that are of interest to us. In Bayesian econometrics we use this tool to actually construct the estimators themselves. I'll put the latter to one side in what follows.