Posts Tagged ‘method of moments’

Estimating parameters by maximum likelihood and method of moments using mlexp and gmm

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\newcommand{\Eb}{{\bf E}}\) This post was written jointly with Joerg Luedicke, Senior Social Scientist and Statistician, StataCorp.


We provide an introduction to parameter estimation by maximum likelihood and method of moments using mlexp and gmm, respectively (see [R] mlexp and [R] gmm). We include some background about these estimation techniques; see Pawitan (2001, Casella and Berger (2002), Cameron and Trivedi (2005), and Wooldridge (2010) for more details.

Maximum likelihood (ML) estimation finds the parameter values that make the observed data most probable. The parameters maximize the log of the likelihood function that specifies the probability of observing a particular set of data given a model.

Method of moments (MM) estimators specify population moment conditions and find the parameters that solve the equivalent sample moment conditions. MM estimators usually place fewer restrictions on the model than ML estimators, which implies that MM estimators are less efficient but more robust than ML estimators. Read more…