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Neglected heterogeneity in moment condition models

Jinyong Hahn, Whitney Newey and Richard Smith ()

Journal of Econometrics, 2014, vol. 178, issue P1, 86-100

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 m-tests against its potential presence. We initially consider the unconditional moment restrictions framework. Optimal m-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 m-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.

Keywords: GMM; GEL; Unconditional moments; Conditional moments; Score and LM tests; Information matrix equality (search for similar items in EconPapers)
JEL-codes: C13 C30 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:178:y:2014:i:p1:p:86-100

DOI: 10.1016/j.jeconom.2013.08.009

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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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