Skip to content Skip to navigation
University of Warwick
  • Study
  • |
  • Research
  • |
  • Business
  • |
  • Alumni
  • |
  • News
  • |
  • About

University of Warwick
Publications service & WRAP

Highlight your research

  • WRAP
    • Home
    • Search WRAP
    • Browse by Warwick Author
    • Browse WRAP by Year
    • Browse WRAP by Subject
    • Browse WRAP by Department
    • Browse WRAP by Funder
    • Browse Theses by Department
  • Publications Service
    • Home
    • Search Publications Service
    • Browse by Warwick Author
    • Browse Publications service by Year
    • Browse Publications service by Subject
    • Browse Publications service by Department
    • Browse Publications service by Funder
  • Help & Advice
University of Warwick

The Library

  • Login
  • Admin

Score tests in GMM : why use implied probabilities?

Tools
- Tools
+ Tools

Chaudhuri, Saraswata and Renault, Eric (2019) Score tests in GMM : why use implied probabilities? Journal of Econometrics, 219 (2). pp. 260-280. doi:10.1016/j.jeconom.2020.03.004 ISSN 0304-4076.

[img]
Preview
PDF (Updated author accepted version)
WRAP-score-tests-GMM-implied-probabilities-Renault-2018.pdf - Accepted Version - Requires a PDF viewer.
Available under License Creative Commons Attribution Non-commercial No Derivatives 4.0.

Download (984Kb) | Preview
[img] PDF
WRAP-score-tests-GMM-implied-probabilities-Renault-2018.pdf - Draft Version
Embargoed item. Restricted access to Repository staff only - Requires a PDF viewer.

Download (932Kb)
Official URL: https://doi.org/10.1016/j.jeconom.2020.03.004

Request Changes to record.

Abstract

While simple to implement and thus attractive in practice, the GMM score test of Newey and West (1987) often displays upward size distortion under common scenarios involving skewed moment vectors or models with weak identification. Inference based on the Generalized Empirical Likelihood (GEL) is seen as a general solution to this problem. Kleibergen (2005) and, more generally, Guggenberger and Smith (2005) devised an elegant theory for the GEL score tests. However, strictly speaking, the GEL score tests do not nest the Newey–West score test. Our paper provides a unified framework for score tests in GMM that nests all of the above as special cases and helps us to understand the precise mechanism by which the standard first order asymptotic theory on size and power well approximates the finite sample behavior of some score tests (namely, a subset of the GEL score tests) but not others. Special attention is paid to models with weak identification. We also argue that the apparent computational burden of GEL can be overcome in practice by recognizing the fundamental common role played by the GEL implied probabilities under all special cases of our framework. In particular, we show that all the GEL implied probabilities are asymptotically equivalent at a higher order – both under the null and under appropriate sequences of alternatives – and thus are exchangeable across computationally burdensome (e.g. Empirical Likelihood) and easy (e.g. Euclidean Empirical Likelihood) GEL score tests without affecting the first order asymptotics. Extensive simulation evidence is provided to corroborate our theoretical results. The simulation results also support a simple and yet important insight on the power of the tests: the use of implied probabilities to efficiently estimate the components of the score statistic, namely, the Jacobian and the asymptotic variance of the moment vector, can significantly improve the power of the score test in finite samples.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
Q Science > QC Physics
T Technology > T Technology (General)
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Econometric models, Estimation theory, Moments method (Statistics), Time-series analysis, Probabilities
Journal or Publication Title: Journal of Econometrics
Publisher: Elsevier BV * North-Holland
ISSN: 0304-4076
Official Date: December 2019
Dates:
DateEvent
December 2019Published
30 March 2020Available
22 January 2019Accepted
Volume: 219
Number: 2
Page Range: pp. 260-280
DOI: 10.1016/j.jeconom.2020.03.004
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Date of first compliant deposit: 5 February 2019
Date of first compliant Open Access: 19 February 2019
Related URLs:
  • Publisher
  • Author

Request changes or add full text files to a record

Repository staff actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics

twitter

Email us: wrap@warwick.ac.uk
Contact Details
About Us