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Tests for neglected heterogeneity in moment condition models

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  • Jinyong Hahn
  • Whitney Newey

    ()
    (Institute for Fiscal Studies and Massachusetts Institute of Technology)

  • Richard Smith

    ()
    (Institute for Fiscal Studies and University of Cambridge)

Abstract

The central concern of the paper is with the formulation of tests of neglected parameter heterogeneity appropriate for model environments specified by a number of unconditional or conditional moment conditions. We initially consider the unconditional moment restrictions framework. Optimal m-tests against moment condition parameter heterogeneity are derived with the relevant Jacobian matrix obtained as the second order derivative of the moment indicator in a leading case. GMM and GEL tests of specification based on generalized information matrix equalities appropriate for moment-based models are described and their relation to the optimal m-tests against moment condition parameter heterogeneity examined. A fundamental and important difference is noted between GMM and GEL constructions. The paper is concluded by a generalization of these tests to the conditional moment context.

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File URL: http://cemmap.ifs.org.uk/wps/cwp2611.pdf
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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP26/11.

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Date of creation: Jul 2011
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Handle: RePEc:ifs:cemmap:26/11

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