Optimal inference in dynamic models with conditional moment restrictions
AbstractBy an application of the theory of optimal estimating function, optimal in- struments for dynamic models with conditional moment restrictions are derived. The general efficiency bound is provided, along with estimators attaining the bound. It is demonstrated that the optimal estimators are always at least as ef- ficient as the traditional optimal generalized method of moments estimator, and usually more efficient. The form of our optimal instruments resembles that from Newey (1990), but involves conditioning on the history of the stochastic pro- cess. In the special case of i.i.d. observations, our optimal estimator reduces to Newey’s. Specification and hypothesis testing in our framework are introduced. We derive the theory of optimal instruments and the associated asymptotic dis- tribution theory for general cases including non-martingale estimating functions and general history dependence. Examples involving time-varying conditional volatility and stochastic volatility are offered.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2008-51.
Date of creation: 11 Sep 2008
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optimal estimating function; generalized method of moments; conditional moment restrictions; dynamic models; optimal instruments; martingale estimating function; specification test;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-ECM-2008-09-29 (Econometrics)
- NEP-ETS-2008-09-29 (Econometric Time Series)
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