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

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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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.
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. repec:cup:cbooks:9780521669672 is not listed on IDEAS
  2. Kohn, Robert, 1983. "Consistent Estimation of Minimal Subset Dimension," Econometrica, Econometric Society, vol. 51(2), pages 367-76, March.
  3. Phillips, Peter C B & Ploberger, Werner, 1996. "An Asymptotic Theory of Bayesian Inference for Time Series," Econometrica, Econometric Society, vol. 64(2), pages 381-412, March.
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  5. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  6. Bhargava, Alok & Sargan, J D, 1983. "Estimating Dynamic Random Effects Models from Panel Data Covering Short Time Periods," Econometrica, Econometric Society, vol. 51(6), pages 1635-59, November.
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  8. Pötscher, B.M., 1991. "Effects of Model Selection on Inference," Econometric Theory, Cambridge University Press, vol. 7(02), pages 163-185, June.
  9. Gallant, A. Ronald & Tauchen, George, 1996. "Which Moments to Match?," Econometric Theory, Cambridge University Press, vol. 12(04), pages 657-681, October.
  10. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
  11. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  12. Pesaran, M Hashem & Smith, Richard J, 1994. "A Generalized R[superscript]2 Criterion for Regression Models Estimated by the Instrumental Variables Method," Econometrica, Econometric Society, vol. 62(3), pages 705-10, May.
  13. Amemiya, Takeshi & MaCurdy, Thomas E, 1986. "Instrumental-Variable Estimation of an Error-Components Model," Econometrica, Econometric Society, vol. 54(4), pages 869-80, July.
  14. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
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  16. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November.
  17. Martin S. Eichenbaum & Lars Peter Hansen & Kenneth J. Singleton, 1986. "A Time Series Analysis of Representative Agent Models of Consumption andLeisure Choice Under Uncertainty," NBER Working Papers 1981, National Bureau of Economic Research, Inc.
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  19. Donald W.K. Andrews, 1990. "Generic Uniform Convergence," Cowles Foundation Discussion Papers 940, Cowles Foundation for Research in Economics, Yale University.
  20. Kabaila, Paul, 1995. "The Effect of Model Selection on Confidence Regions and Prediction Regions," Econometric Theory, Cambridge University Press, vol. 11(03), pages 537-549, June.
  21. Gallant, A. Ronald & Hsieh, David & Tauchen, George, 1995. "Estimation of Stochastic Volatility Models with Diagnostics," Working Papers 95-36, Duke University, Department of Economics.
  22. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  23. Donald W.K. Andrews, 1997. "Consistent Moment Selection Procedures for Generalized Method of Moments Estimation," Cowles Foundation Discussion Papers 1146R, Cowles Foundation for Research in Economics, Yale University.
  24. Amemiya, Takeshi, 1980. "Selection of Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 331-54, June.
  25. Nishii, R., 1988. "Maximum likelihood principle and model selection when the true model is unspecified," Journal of Multivariate Analysis, Elsevier, vol. 27(2), pages 392-403, November.
  26. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  27. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
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  29. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
  30. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  31. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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