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Identification of the Covariance Structure of Earnings using the GMM Estimator

  • Aedin Doris

    ()

    (Economics,Finance and Accounting National University of Ireland, Maynooth)

  • Donal O'Neill

    ()

    (Economics,Finance and Accounting National University of Ireland,)

  • Olive Sweetman

    ()

    (Economics,Finance and Accounting National University of Ireland,)

In this paper we study the performance of the GMM estimator in the context of the covariance structure of earnings. Using analytical and Monte Carlo techniques we examine the sensitivity of parameter identification to key features such as panel length, sample size, the degree of persistence of earnings shocks and the evolution of inequality over time. We show that the interaction of transitory persistence with the time pattern of inequality determines identification in these models and offer some practical recommendations that follow from our findings.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n208-10.pdf.

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Length: 30 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:may:mayecw:n208-10.pdf
Contact details of provider: Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting

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  27. Aedin Doris & Donal O'Neill & Olive Sweetman, 2010. "Aggregate Earnings Inequality in Europe: Permanent Differences or Transitory Fluctuations?," Economics, Finance and Accounting Department Working Paper Series n211-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
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