Inference for parameters identified by conditional moment restrictions using a generalized Bierens maximum statistic

Xiaohong Chen, Sokbae (Simon) Lee, Myung Hwan Seo and Myunghyun Song

No 26/24, CeMMAP working papers from Institute for Fiscal Studies

Abstract: Many economic panel and dynamic models, such as rational behavior and Euler equations, imply that the parameters of interest are identified by conditional moment restrictions. We introduce a novel inference method without any prior information about which conditioning instruments are weak or irrelevant. Building on Bierens (1990), we propose penalized maximum statistics and combine bootstrap inference with model selection. Our method optimizes asymptotic power by solving a data-dependent max-min problem for tuning parameter selection. Extensive Monte Carlo experiments, based on an empirical example, demonstrate the extent to which our inference procedure is superior to those available in the literature.

Date: 2024-12-13
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Working Paper: Inference for parameters identified by conditional moment restrictions using a generalized Bierens maximum statistic (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:26/24

DOI: 10.47004/wp.cem.2024.2624

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