Bruce E. Hansen and Seojeong Lee
Inference for Iterated GMM Under Misspecification
Econometrica (2021), 89, 1419-1447
Abstract:
This paper develops inference methods for the iterated over-identified
Generalized Method of Moments (GMM) estimator. We provide conditions for the
existence of the iterated estimator, and an asymptotic distribution theory
which allows for mild misspecification. Moment misspecification causes bias in
conventional GMM variance estimators which can lead to severely over-sized
hypothesis tests. We show how to consistently estimate the correct asymptotic
variance matrix. Our simulation results show that our methods are properly
sized under both correct specification and misspecification. We illustrate the
method with an application to the model of Acemoglu, Johnson, Robinson, and
Yared (2008).
The copyright to this Article is held by the Econometric Society. It may be downloaded,
printed and reproduced only for educational or research purposes, including use in
course packs. No downloading or copying may be done for any commercial purpose
without the explicit permission of the Econometric Society. For such commercial
purposes contact the Office of the Econometric Society (contact information may be
found at the website http://www.econometricsociety.org or in the back cover of
Econometrica).
Download PDF file
Link to Programs
Some of the above material is based upon work supported by the National Science Foundation under Grants No. SES-9022176, SES-9120576, SBR-9412339, and SBR-9807111.
Any opinions, findings, and conclusions, or recommendations expressed in this material are those of the author(s), and do not necessarily reflect the views of the NSF.