Consistent Inference in Models Defined by Conditional Moment Restrictions: An Alternative to GMM

Abstract

This article introduces a uni…ed methodology for estimating and testing nonlinear econometric models de…ned by conditional moment restrictions. These models are very common in econometrics, such as nonlinear rational expectation models. The current approach for inference in these models is the generalized method of moments (GMM) methodology, as proposed by Hansen and Singleton (1982). Although GMM provides a uni…ed methodology for statistical inference that is simple to implement, it may yield inconsistent statistical procedures because it just employs a …nite number of moments. This is a very important theoretical and applied problem, as illustrated by a simpli…ed consumption-based asset pricing model. Contrary to GMM, the methodology proposed in this article delivers consistent statistical procedures because it employs an in…nite number of moments that characterizes the conditional moment. In addition, the proposed methodology is widely applicable for general time series data and easy to implement. In particular, the proposed speci…cation test relies on a novel and very simple wild bootstrap procedure. Keywords and Phrases: Generalized Method of Moments, Identi…cation, Unconditional Moments, Consistency, Minimum Distance, Marked Empirical Process. JEL classi…cation numbers: C12 and C52 1Corresponding author. Address: Centro de Investigación Económica, Instituto Tecnológico Autónomo de México (ITAM), Av. Camino a Santa Teresa #930, 10700 México, D.F., MEXICO, ilobato@itam.mx

11 Figures and Tables

Cite this paper

@inproceedings{Domnguez2010ConsistentII, title={Consistent Inference in Models Defined by Conditional Moment Restrictions: An Alternative to GMM}, author={Manuel A. Dom{\'i}nguez and Ignacio N. Lobato}, year={2010} }