Reliable Inference for GMM Estimators? Finite Sample Properties of Alternative Test Procedures in Linear Panel Data Models
Econometric Reviews, Vol. 24, No. 1, pp. 1-37, 2005
Posted: 9 Jun 2005
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 finite sample corrected estimate of the variance of the two-step GMM estimator; the LM test; and three criterion-based 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.
Keywords: Generalised Method of Moments, Hypothesis Testing, Finite Sample Inference
JEL Classification: C12, C23
Suggested Citation: Suggested Citation