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Valid Inference in Partially Unstable Generalized Method of Moments Models

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Author Info
HONG LI
ULRICH K. MÜLLER
Abstract

This paper considers time series Generalized Method of Moments (GMM) models where a subset of the parameters are time varying. We focus on an empirically relevant case with moderately large instabilities, which are well approximated by a local asymptotic embedding that does not allow the instability to be detected with certainty, even in the limit. We show that for many forms of the instability and a large class of GMM models, usual GMM inference on the subset of stable parameters is asymptotically unaffected by the partial instability. In the empirical analysis of presumably stable parameters-such as structural parameters in Euler conditions-one can thus ignore moderate instabilities in other parts of the model and still obtain approximately correct inference. Copyright © 2009 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2008.00516.x
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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 76 (2009)
Issue (Month): 1 (01)
Pages: 343-365
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Handle: RePEc:bla:restud:v:76:y:2009:i:1:p:343-365

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This page was last updated on 2009-10-26.

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