Convexity Not Required: Estimation of Smooth Moment Condition Models

Résumé 0

Generalized and Simulated Method of Moments are often used to estimate structural Economic models. Yet, it is commonly reported that optimization is challenging because the corresponding objective function is non-convex. For smooth problems, this paper shows that convexity is not required: under a global rank condition involving the Jacobian of the sample moments, certain algorithms are globally convergent. These include a gradient-descent and a Gauss-Newton algorithm with appropriate choice of tuning parameters. The results are robust to 1) non-convexity, 2) one-to-one non-linear reparameterizations, and 3) moderate misspecification. In contrast, Newton-Raphson and quasi-Newton methods can fail to converge for the same estimation because of non-convexity. A simple example illustrates a non-convex GMM estimation problem that satisfies the aforementioned rank condition. Empirical applications to random coefficient demand estimation and impulse response matching further illustrate the results.