The empirical saddlepoint likelihood estimator applied to two-step GMM
AbstractThe empirical saddlepoint likelihood (ESPL) estimator is introduced. The ESPL provides improvement over one-step GMM estimators by including additional terms to automatically reduce higher order bias. The first order sampling properties are shown to be equivalent to efficient two-step GMM. New tests are introduced for hypothesis on the model's parameters. The higher order bias is calculated and situations of practical interest are noted where this bias will be smaller than for currently available estimators. As an application, the ESPL is used to investigate an overidentified moment model. It is shown how the model's parameters can be estimated with both the ESPL and a conditional ESPL (CESPL), conditional on the overidentifying restrictions being satisfied. This application leads to several new tests for overidentifying restrictions. Simulations demonstrate that ESPL and CESPL have smaller bias than currently available one-step GMM estimators. The simulations also show new tests for overidentifying restrictions that have performance comparable to or better than currently available tests. The computations needed to calculate the ESPL estimator are comparable to those needed for a one-step GMM estimator.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15494.
Date of creation: Feb 2009
Date of revision: May 2009
Generalized method of moments estimator; test of overidentifying restrictions; sampling distribution; empirical saddlepoint approximation; asymptotic distribution; higher order bias;
Find related papers by JEL classification:
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hall, Alastair R., 2004. "Generalized Method of Moments," OUP Catalogue, Oxford University Press, number 9780198775201.
- Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 262-80, July.
- Yuichi Kitamura & Michael Stutzer, 1997. "An Information-Theoretic Alternative to Generalized Method of Moments Estimation," Econometrica, Econometric Society, vol. 65(4), pages 861-874, July.
- Gregory, Allan W. & Lamarche, Jean-Francois & Smith, Gregor W., 2002.
"Information-theoretic estimation of preference parameters: macroeconomic applications and simulation evidence,"
Journal of Econometrics,
Elsevier, vol. 107(1-2), pages 213-233, March.
- Allan W. Gregory & Jean-Francois Lamarche & Gregor W. Smith, 2001. "Information-Theoretic Estimation of Preference Parameters: Macroeconomic Applications and Simulation Evidence," Working Papers 1249, Queen's University, Department of Economics.
- Sowell, Fallaw, 1996. "Optimal Tests for Parameter Instability in the Generalized Method of Moments Framework," Econometrica, Econometric Society, vol. 64(5), pages 1085-1107, September.
- Whitney K. Newey & Richard J. Smith, 2004.
"Higher Order Properties of Gmm and Generalized Empirical Likelihood Estimators,"
Econometric Society, vol. 72(1), pages 219-255, 01.
- Whitney Newey & Richard Smith, 2003. "Higher order properties of GMM and generalised empirical likelihood estimators," CeMMAP working papers CWP04/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Jens Jensen & Andrew Wood, 1998. "Large Deviation and Other Results for Minimum Contrast Estimators," Annals of the Institute of Statistical Mathematics, Springer, vol. 50(4), pages 673-695, December.
- Hall, Peter & Horowitz, Joel L, 1996. "Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators," Econometrica, Econometric Society, vol. 64(4), pages 891-916, July.
- Sowell, Fallaw, 2006. "The Empirical Saddlepoint Approximation for GMM Estimators," MPRA Paper 3356, University Library of Munich, Germany, revised May 2007.
- Susanne M. Schennach, 2007. "Point estimation with exponentially tilted empirical likelihood," Papers 0708.1874, arXiv.org.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.