Reliable Inference for GMM Estimators? Finite Sample Properties of Alternative Test Procedures in Linear Panel Data Models.

Journal article

We compare the finite sample performance of a range of tests of linear restrictions for linear panel data models estimated using the generalized 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.

Authors: Bond, S; Windmeijer, F

• Publisher: Taylor&Francis
• Journal: Econometric Reviews
• Volume: 24
• Issue: 1
• Pages: 1 - 37
• Publication date: 2005-01-01
• DOI: 10.1081/ETC-200049126
• ISSN: 0747-4938
• Language: English