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Finite sample inference for GMM estimators in linear panel data models

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  • Stephen Bond
  • Frank Windmeijer

Abstract

We compare the finite sample performance of a range of tests of linear restrictions for linear panel data models estimated using Generalised Method of Moments (GMM). These include standard asymptotic Wald tests based on one-step and two-step GMM estimators; two bootstrapped versions of these Wald tests; a version of the two-step Wald test that uses a more accurate asymptotic approximation to the distribution of the estimator; the LM test; and three criterion-bases tests that have recently been proposed. We consider both the AR(1) panel model, and a design with predetermined regressors. The corrected two-step Wald test performs similarly to the standard one-step Wald test, whilst the bootstrapped one-step Wald test, the LM test, and a simple criterion-difference test can provide more reliable finite sample inference in some cases.

Suggested Citation

  • Stephen Bond & Frank Windmeijer, 2002. "Finite sample inference for GMM estimators in linear panel data models," CeMMAP working papers 04/02, Institute for Fiscal Studies.
    • Handle: RePEc:azt:cemmap:04/02
    DOI: 10.1920/wp.cem.2002.0402
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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