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

See all articles by Stephen R. Bond

Stephen R. Bond

Nuffield College; Institute for Fiscal Studies (IFS)

Frank Windmeijer

University of Bristol - Department of Economics; University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO); Institute for Fiscal Studies (IFS) - Centre for Microdata Methods and Practice

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

Bond, Stephen R. and Windmeijer, Frank, 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, Available at SSRN: https://ssrn.com/abstract=735225

Stephen R. Bond

Nuffield College ( email )

Manor Road Building
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Institute for Fiscal Studies (IFS)

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London, WC1E 7AE
United Kingdom
+44 20 7291 4800 (Phone)
+44 20 7323 4780 (Fax)

Frank Windmeijer (Contact Author)

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO) ( email )

12 Priory Road
Bristol BS8 1TN
United Kingdom

Institute for Fiscal Studies (IFS) - Centre for Microdata Methods and Practice

7 Ridgmount Street
London WC1E 7AE, WC1E 7 AE
United Kingdom

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