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Consistent Inference in Models Defined by COnditional Moment Restrictions: an Alternative to GMM

Author

Listed:
  • Manuel Dominguez

    () (Facultad de Ciencias Economicas y EMpresariales, Universidad COmplutense de Madrid)

  • Ignacio Lobato

    () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

This article introduces a unified methodology for estimating and testing nonlinear econometric models defined by conditional moment restrictions. These models are very common in econometrics, such as nonlinear rational expectation models. The current approach for inference in these models is the generalized method of moments (GMM) methodology, as proposed by Hansen and Singleton (1982). Although GMM provides a unified methodology for statistical inference that is simple to implement, it may yield inconsistent statistical procedures because it just employs a finite number of moments. This is a very important theoretical and applied problem, as illustrated by a simplified consumption-based asset pricing model. Contrary to GMM, the methodology proposed in this article delivers consistent statistical procedures because it employs an infinite number of moments that characterizes the conditional moment. In addition, the proposed methodology is widely applicable for general time series data and easy to implement. In particular, the proposed specification test relies on a novel and very simple wild bootstrap procedure.

Suggested Citation

  • Manuel Dominguez & Ignacio Lobato, 2010. "Consistent Inference in Models Defined by COnditional Moment Restrictions: an Alternative to GMM," Working Papers 1005, Centro de Investigacion Economica, ITAM.
  • Handle: RePEc:cie:wpaper:1005
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    File URL: http://ftp.itam.mx/pub/academico/inves/lobato/10-05.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Generalized Method of Moments; Identification; Unconditional Moments; Consistency; Minimum Distance; Marked Empirical Process;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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