Generalized autoregressive Method of Moments

Tinbergen Institute Discussion Paper 15-138/III

45 Pages Posted: 20 Jan 2016 Last revised: 1 Jul 2018

See all articles by Drew Creal

Drew Creal

University of Chicago - Booth School of Business - Econometrics and Statistics

Siem Jan Koopman

Vrije Universiteit Amsterdam - School of Business and Economics; Tinbergen Institute; Aarhus University - CREATES

Andre Lucas

Vrije Universiteit Amsterdam - School of Business and Economics; Tinbergen Institute

Marcin Zamojski

University of Gothenburg, Centre for Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2018

Abstract

We extend the generalized method of moments to a setting where a subset of the parameters may vary over time with unknown dynamics. We approximate the true unknown dynamics by an updating scheme that is driven by the influence function of the conditional criterion function at time t. The updates ensure a local improvement of the conditional criterion function at each time in expectation. In our framework, time-varying parameters are a function of past data; it leads to a computationally efficient method since it does not require simulation-based methods for estimation. The approach can be applied to a wide range of moment conditions that are used in economics and finance. We provide an illustration for a capital asset pricing model with time-varying risk aversion.

Keywords: dynamic models, time-varying parameters, generalized method of moments, non-linearity, equity premium puzzle, CCAPM

JEL Classification: C10, C22, C32, C51

Suggested Citation

Creal, Drew and Koopman, Siem Jan and Lucas, Andre and Zamojski, Marcin, Generalized autoregressive Method of Moments (June 25, 2018). Tinbergen Institute Discussion Paper 15-138/III. Available at SSRN: https://ssrn.com/abstract=2718186 or http://dx.doi.org/10.2139/ssrn.2718186

Drew Creal (Contact Author)

University of Chicago - Booth School of Business - Econometrics and Statistics ( email )

Chicago, IL 60637
United States

Siem Jan Koopman

Vrije Universiteit Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31205986019 (Phone)

HOME PAGE: http://sjkoopman.net

Tinbergen Institute ( email )

Gustav Mahlerplein 117
1082 MS Amsterdam
Netherlands

HOME PAGE: http://personal.vu.nl/s.j.koopman

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Andre Lucas

Vrije Universiteit Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6039 (Phone)
+31 20 598 6020 (Fax)

HOME PAGE: http://personal.vu.nl/a.lucas

Tinbergen Institute

Roetersstraat 31
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.tinbergen.nl

Marcin Zamojski

University of Gothenburg, Centre for Finance ( email )

Box 640
Gothenburg, 405 30
Sweden

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