Operations Management and Econometrics

Identification pathologies and their effects on GMM

Dr Maurice J.G. Bun, Tinbergen Institute and Amsterdam School of Economics, University of Amsterdam, The Netherlands

7th Apr 2011  02:00 pm - Room 498, Merewether Building

We apply a range of GMM based inference procedures to the first-order dynamic panel data model. We use moment conditions from either the first differenced or levels model or both. In addition to standard Wald and LM procedures we consider some recently developed weak instrument robust GMM statistics. By Monte Carlo simulation we address size and power in finite samples of hypothesis tests on the autoregressive coefficient. Both our theoretical and simulation results indicate that conventional tests are subject to considerable size distortions in a significant part of the parameter space. In addition, there is a decline in power close to the unit root. Weak instrument robust statistics, however, have good size properties while maintaining sufficient power in the system model in some cases.

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