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Asymptotic Size of Kleibergen's LM and Conditional LR Tests for Moment Condition Models

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Abstract

An influential paper by Kleibergen (2005) introduces Lagrange multiplier (LM) and conditional likelihood ratio-like (CLR) tests for nonlinear moment condition models. These procedures aim to have good size performance even when the parameters are unidentified or poorly identified. However, the asymptotic size and similarity (in a uniform sense) of these procedures has not been determined in the literature. This paper does so. This paper shows that the LM test has correct asymptotic size and is asymptotically similar for a suitably chosen parameter space of null distributions. It shows that the CLR tests also have these properties when the dimension p of the unknown parameter theta equals 1: When p > 2; however, the asymptotic size properties are found to depend on how the conditioning statistic, upon which the CLR tests depend, is weighted. Two weighting methods have been suggested in the literature. The paper shows that the CLR tests are guaranteed to have correct asymptotic size when p > 2 with one weighting method, combined with the Robin and Smith (2000) rank statistic. The paper also determines a formula for the asymptotic size of the CLR test with the other weighting method. However, the results of the paper do not guarantee correct asymptotic size when p > 2 with the other weighting method, because two key sample quantities are not necessarily asymptotically independent under some identification scenarios. Analogous results for confidence sets are provided. Even for the special case of a linear instrumental variable regression model with two or more right-hand side endogenous variables, the results of the paper are new to the literature.

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  • Donald W. K. Andrews & Patrik Guggenberger, 2014. "Asymptotic Size of Kleibergen's LM and Conditional LR Tests for Moment Condition Models," Cowles Foundation Discussion Papers 1977, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1977
    Note: Includes supplemental material
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    References listed on IDEAS

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    1. Davidson, James, 1994. "Stochastic Limit Theory: An Introduction for Econometricians," OUP Catalogue, Oxford University Press, number 9780198774037.
    2. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    3. de Jong, Robert M., 1997. "Central Limit Theorems for Dependent Heterogeneous Random Variables," Econometric Theory, Cambridge University Press, vol. 13(3), pages 353-367, June.
    4. Frank Kleibergen, 2005. "Testing Parameters in GMM Without Assuming that They Are Identified," Econometrica, Econometric Society, vol. 73(4), pages 1103-1123, July.
    5. Andrews, Donald W.K., 1988. "Laws of Large Numbers for Dependent Non-Identically Distributed Random Variables," Econometric Theory, Cambridge University Press, vol. 4(3), pages 458-467, December.
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    Citations

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    Cited by:

    1. Tetsuya Kaji, 2019. "Theory of Weak Identification in Semiparametric Models," Papers 1908.10478, arXiv.org, revised Aug 2020.
    2. Moreira, Humberto & Moreira, Marcelo J., 2019. "Optimal two-sided tests for instrumental variables regression with heteroskedastic and autocorrelated errors," Journal of Econometrics, Elsevier, vol. 213(2), pages 398-433.
    3. Andrews, Donald W.K. & Cheng, Xu & Guggenberger, Patrik, 2020. "Generic results for establishing the asymptotic size of confidence sets and tests," Journal of Econometrics, Elsevier, vol. 218(2), pages 496-531.
    4. Steven T. Berry & Philip A. Haile, 2021. "Foundations of Demand Estimation," Cowles Foundation Discussion Papers 2301, Cowles Foundation for Research in Economics, Yale University.
    5. Stépahne Auray & Nicolas Lepage-Saucier & Purevdorj Tuvaandor, 2018. "Doubly Robust GMM Inference and Differentiated Products Demand Models," Working Papers 2018-13, Center for Research in Economics and Statistics.
    6. Martínez-Iriarte, Julián & Sun, Yixiao & Wang, Xuexin, 2020. "Asymptotic F tests under possibly weak identification," Journal of Econometrics, Elsevier, vol. 218(1), pages 140-177.
    7. Phillips, Peter C.B. & Gao, Wayne Yuan, 2017. "Structural inference from reduced forms with many instruments," Journal of Econometrics, Elsevier, vol. 199(2), pages 96-116.
    8. Gregory Cox, 2020. "Weak Identification with Bounds in a Class of Minimum Distance Models," Papers 2012.11222, arXiv.org, revised Dec 2022.
    9. Don S. Poskitt, 2020. "On GMM Inference: Partial Identification, Identification Strength, and Non-Standard," Monash Econometrics and Business Statistics Working Papers 40/20, Monash University, Department of Econometrics and Business Statistics.
    10. Gregory Cox, 2022. "Weak Identification in Low-Dimensional Factor Models with One or Two Factors," Papers 2211.00329, arXiv.org, revised Mar 2024.
    11. Purevdorj Tuvaandorj, 2021. "Robust Permutation Tests in Linear Instrumental Variables Regression," Papers 2111.13774, arXiv.org, revised Jun 2023.
    12. Frank Kleibergen & Zhaoguo Zhan, 2021. "Double robust inference for continuous updating GMM," Papers 2105.08345, arXiv.org.
    13. Cheng, Xu, 2015. "Robust inference in nonlinear models with mixed identification strength," Journal of Econometrics, Elsevier, vol. 189(1), pages 207-228.
    14. Aragón, Edilean Kleber da Silva Bejarano & Galvão, Ana Beatriz, 2023. "Shock-based inference on the Phillips curve with the cost channel," Economic Modelling, Elsevier, vol. 126(C).
    15. Chaudhuri, Saraswata & Renault, Eric, 2020. "Score tests in GMM: Why use implied probabilities?," Journal of Econometrics, Elsevier, vol. 219(2), pages 260-280.

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    More about this item

    Keywords

    Asymptotics; Conditional likelihood ratio test; Confidence set; Identification; Inference; Lagrange multiplier test; Moment conditions; Robust; Test; Weak identification; Weak instruments;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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