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Corrected standard errors for optimal minimum distance estimator

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  • Hayakawa, Kazuhiko

Abstract

This paper compares three types of standard errors for optimal minimum distance (OMD) estimator where the structural parameter is recovered from the reduced form parameters estimated by a two-step GMM estimator. We demonstrate that the naive standard errors are severely biased and cause over-rejection, while the OMD estimator based on the bias-corrected variance matrix by Windmeijer (2005) and newly derived variance estimator yield much more accurate inference.

Suggested Citation

  • Hayakawa, Kazuhiko, 2018. "Corrected standard errors for optimal minimum distance estimator," Economics Letters, Elsevier, vol. 167(C), pages 5-9.
    • Handle: RePEc:eee:ecolet:v:167:y:2018:i:c:p:5-9
    DOI: 10.1016/j.econlet.2018.02.029
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    References listed on IDEAS

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-366, July.
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    4. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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    7. Ahn, Seung C. & Lee, Young H. & Schmidt, Peter, 2013. "Panel data models with multiple time-varying individual effects," Journal of Econometrics, Elsevier, vol. 174(1), pages 1-14.
    8. Hayakawa, Kazuhiko, 2016. "Identification problem of GMM estimators for short panel data models with interactive fixed effects," Economics Letters, Elsevier, vol. 139(C), pages 22-26.
    9. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    10. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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    More about this item

    Keywords

    Standard error; Minimum distance estimator; Panel data model; Serial correlation; Interactive fixed effects;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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