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Neglected heterogeneity in moment condition models

Author

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  • Hahn, Jinyong
  • Newey, Whitney K.
  • Smith, Richard J.

Abstract

The central concern of this paper is parameter heterogeneity in models specified by a number of unconditional or conditional moment conditions and thereby the provision of a framework for the development of apposite optimal m-tests against its potential presence. We initially consider the unconditional moment restrictions framework. Optimal m-tests against moment condition parameter heterogeneity are derived with the relevant Jacobian matrix obtained in terms of the second order own derivatives 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 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 and the provision of a limited set of simulation experiments to illustrate the efficacy of the proposed tests.

Suggested Citation

  • Hahn, Jinyong & Newey, Whitney K. & Smith, Richard J., 2014. "Neglected heterogeneity in moment condition models," Journal of Econometrics, Elsevier, vol. 178(P1), pages 86-100.
  • Handle: RePEc:eee:econom:v:178:y:2014:i:p1:p:86-100
    DOI: 10.1016/j.jeconom.2013.08.009
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    References listed on IDEAS

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    More about this item

    Keywords

    GMM; GEL; Unconditional moments; Conditional moments; Score and LM tests; Information matrix equality;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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