Select the Valid and Relevant Moments: A One-Step Procedure for GMM with Many Moments

Xu Cheng and Zhipeng Liao

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper considers the selection of valid and relevant moments for the generalized method of moments (GMM) estimation. For applications with many candidate moments, our asymptotic analysis ccommodates a diverging number of moments as the sample size increases. The proposed procedure achieves three objectives in one-step: (i) the valid and relevant moments are selected simultaneously rather than sequentially; (ii) all desired moments are selected together instead of in a stepwise manner; (iii) the parameter of interest is automatically estimated with all selected moments as opposed to a post-selection estimation. The new moment selection method is achieved via an information-based adaptive GMM shrinkage estimation, where an appropriate penalty is attached to the standard GMM criterion to link moment selection to shrinkage estimation. The penalty is designed to signal both moment validity and relevance for consistent moment selection and efficient estimation. The asymptotic analysis allows for non -smooth sample moments and weakly dependent observations, making it generally applicable. For practical implementation, this one-step procedure is computationally attractive.

Keywords: Adaptive Penalty; GMM; Many Moments; Moment Selection; Oracle Properties; Shrinkage Estimation (search for similar items in EconPapers)
JEL-codes: C12 C13 C36 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2012-11-26
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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