Author Description

<b>An operational simulation-based implementation of a fundamental research principle in the sciences—the idea that a model must account for, or encompass, findings of alternative models.</b><br><br>To account for the universal deficiency of all economic models, Jean-François Richard, Robert Marshall, and Chaohai Shen propose in this book an operational test of whether a model accounts for—or encompasses—key results of alternative models. This simulation-based approach is distinct from the likelihood-based approach of forty-plus years ago. It is specifically designed to be applicable to serious nonlinear applications, under the minimal requirement that the models under consideration be amenable to Monte Carlo simulations.<br><br>The method of simulated moments, increasingly applied in major empirical applications, provides the ideal framework to compute a wide range of formal simulation-based encompassing test statistics. The authors argue that simulation-based encompassing is particularly easy to implement when the model of interest incorporates novel features relative to an earlier “benchmark” model: that is, “nests” the latter.<br><br>The book should be of particular interest to practitioners, researchers, and graduate students who wish to validate their models using simulation-based encompassing as a rigorous scientific alternative to more informal model comparisons.