Consistent Model and Moment Selection Criteria for GMM Estimation with Application to Dynamic Panel Data Models

Working Paper No. 1233

Posted: 31 May 2000

See all articles by Donald W. K. Andrews

Donald W. K. Andrews

Yale University - Cowles Foundation

Biao Lu

University of Michigan at Ann Arbor

Date Written: 1999

Abstract

This paper develops consistent model and moment selection criteria for GMM estimation. The criteria select the correct model specification and all correct moment conditions asymptotically. The selection criteria resemble the widely used likelihood-based selection criteria BIC, HQIC, and AIC. (The latter is not consistent.) The GMM selection criteria are based on the J statistic for testing over-identifying restrictions. Bonus terms reward the use of fewer parameters for a given number of moment conditions and the use of more moment conditions for a given number of parameters. The paper applies the model and moment selection criteria to dynamic panel data models with unobserved individual effects. The paper shows how to apply the selection criteria to select the lag length for lagged dependent variables, to detect the number and locations of structural breaks, to determine the exogeneity of regressors, and/or to determine the existence of correlation between some regressors and the individual effect.

JEL Classification: C12, C13, C52

Suggested Citation

Andrews, Donald W. K. and Lu, Biao, Consistent Model and Moment Selection Criteria for GMM Estimation with Application to Dynamic Panel Data Models (1999). Working Paper No. 1233, Available at SSRN: https://ssrn.com/abstract=215855

Donald W. K. Andrews (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3698 (Phone)
203-432-6167 (Fax)

Biao Lu

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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