Tests for neglected heterogeneity in moment condition models

Jinyong Hahn, Whitney Newey and Richard Smith (rjs27@econ.cam.ac.uk)

No CWP26/11, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract:

The central concern of the paper is with the formulation of tests of neglected parameter heterogeneity appropriate for model environments specified by a number of unconditional or conditional moment conditions. We initially consider the unconditional moment restrictions framework. Optimal m-tests against moment condition parameter heterogeneity are derived with the relevant Jacobian matrix obtained as the second order derivative 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 the 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.

Date: 2011-07-13
New Economics Papers: this item is included in nep-ecm
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