Identification Using Stability Restrictions

60 Pages Posted: 6 Mar 2015

See all articles by Leandro M. Magnusson

Leandro M. Magnusson

University of Western Australia

Sophocles Mavroeidis

University of Oxford - Department of Economics

Date Written: July 30, 2013

Abstract

This paper studies inference in models that are identified by moment restrictions. We show how instability of the moments can be used constructively to improve the identification of structural parameters that are stable over time. A leading example is macroeconomic models that are immune to the well-known Lucas (1976) critique in the face of policy regime shifts. This insight is used to develop novel econometric methods that extend the widely used generalized method of moments (GMM). The proposed methods yield improved inference on the parameters of the new Keynesian Phillips curve.

Keywords: GMM, identification, structural stability, Lucas critique

JEL Classification: C22, E31

Suggested Citation

Magnusson, Leandro M. and Mavroeidis, Sophocles, Identification Using Stability Restrictions (July 30, 2013). Econometrica, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2574523

Leandro M. Magnusson (Contact Author)

University of Western Australia ( email )

35 Stirling Highway, M251
Crawley, WA 6009
Australia
+61 8 6488 2924 (Phone)
+61 8 6488 1016 (Fax)

HOME PAGE: http://www.uwa.edu.au/people/Leandro.Magnusson

Sophocles Mavroeidis

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

HOME PAGE: http://https://sites.google.com/site/sophoclesmavroeidis/

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