Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5097606 | Journal of Econometrics | 2006 | 23 Pages |
Abstract
GMM estimators have poor finite sample properties in highly overidentified models. With many moment conditions the optimal weighting matrix is poorly estimated. We suggest using principal components of the weighting matrix. This effectively drops some of the moment conditions. Our simulations, done in the context of the dynamic panel data model, show that the resulting GMM estimator has better finite sample properties than the usual two-step GMM estimator, in the sense of smaller bias and more reliable standard errors.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Howard E. Doran, Peter Schmidt,