Integrating Structural and Reduced-Form Methods in Empirical Finance
General Economics
2022-05-04 v1 Economics
Abstract
I discuss various ways in which inference based on the estimation of the parameters of statistical models (reduced-form estimation) can be combined with inference based on the estimation of the parameters of economic models (structural estimation). I discuss five basic categories of integration: directly combining the two methods, using statistical models to simplify structural estimation, using structural estimation to extend the validity of reduced-form results, using reduced-form techniques to assess the external validity of structural estimations, and using structural estimation as a sample selection remedy. I illustrate each of these methods with examples from corporate finance, banking, and personal finance.
Cite
@article{arxiv.2205.01175,
title = {Integrating Structural and Reduced-Form Methods in Empirical Finance},
author = {Toni M. Whited},
journal= {arXiv preprint arXiv:2205.01175},
year = {2022}
}