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Consistent Model and Moment Selection Criteria for GMM Estimation with Applications to Dynamic Panel Data Models

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Abstract

This paper develops consistent model and moment selection criteria for GMM estimation. The criteria select the correct model specification and all correct moment conditions asymptotically. The selection criteria resemble the widely used likelihood-based selection criteria BIC, HQIC, and AIC. (The latter is not consistent.) The GMM selection criteria are based on the J statistic for testing over-identifying restrictions. Bonus terms reward the use of fewer parameters for a given number of moment conditions and the use of more moment conditions for a given number of parameters. The paper applies the model and moment selection criteria to dynamic panel data models with unobserved individual effects. The paper shows how to apply the selection criteria to select the lag length for lagged dependent variables, to detect the number and locations of structural breaks, to determine the exogeneity of regressors, and/or to determine the existence of correlation between some regressors and the individual effect. To illustrate the finite sample performance of the selection criteria and their impact on parameter estimation, the paper reports the results of a Monte Carlo experiment on a dynamic panel data model.

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File URL: http://cowles.econ.yale.edu/P/cd/d12a/d1233.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1233.

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Length: 47 pages
Date of creation: Aug 1999
Date of revision:
Publication status: Published in Journal of Econometrics (2001), 101(1): 123-164
Handle: RePEc:cwl:cwldpp:1233

Note: CFP 1015.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: Akaike information criterion; Bayesian information criterion; consistent selection procedure; generalized method of moments estimator; instrumental variables estimator; model selection; moment selection; panel data model; test of over-identifying restrictions;

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References

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Cited by:
  1. Todd Prono, 2006. "GARCH-based identification of triangular systems with an application to the CAPM: still living with the roll critique," Working Papers 07-1, Federal Reserve Bank of Boston.
  2. Hans Genberg & Laurent L. Pauwels, 2003. "An Open Economy New Keynesian Phillips Curve: Evidence from Hong Kong," IHEID Working Papers 03-2003, Economics Section, The Graduate Institute of International Studies.
  3. Andrews, Donald W. K. & Lu, Biao, 2001. "Consistent model and moment selection procedures for GMM estimation with application to dynamic panel data models," Journal of Econometrics, Elsevier, vol. 101(1), pages 123-164, March.

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