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Neglected heterogeneity in moment condition models

Accepted version
Peer-reviewed

Type

Article

Change log

Authors

Hahn, J 
Newey, WK 
Smith, RJ 

Abstract

The central concern of this paper is parameter heterogeneity in models specified by a number of unconditional or conditional moment conditions and thereby the provision of a framework for the development of apposite optimal -tests against its potential presence. We initially consider the unconditional moment restrictions framework. Optimal -tests against moment condition parameter heterogeneity are derived with the relevant Jacobian matrix obtained in terms of the second order own derivatives of the moment indicator in a leading case. GMM and GEL tests of specification based on generalized information matrix equalities appropriate for moment-based models are described and their relation to optimal -tests against moment condition parameter heterogeneity examined. A fundamental and important difference is noted between GMM and GEL constructions. The paper is concluded by a generalization of these tests to the conditional moment context and the provision of a limited set of simulation experiments to illustrate the efficacy of the proposed tests.

Description

Keywords

GMM, GEL, Unconditional moments, Conditional moments, Score and LM tests, Information matrix equality

Journal Title

Journal of Econometrics

Conference Name

Journal ISSN

0304-4076
1872-6895

Volume Title

178

Publisher

Elsevier