GEL methods for non-smooth moment indicators
Dias Costa Parente, Paulo M.
Smith, Richard J.
Cambridge University Press
This paper considers the first-order large sample properties of the generalized empirical likelihood (GEL) class of estimators for models specified by nonsmooth indicators. The GEL class includes a number of estimators recently introduced as alternatives to the efficient generalized method of moments (GMM) estimator that may suffer from substantial biases in finite samples. These include empirical likelihood (EL), exponential tilting (ET), and the continuous updating estimator (CUE). This paper also establishes the validity of tests suggested in the smooth moment indicators case for overidentifying restrictions and specification. In particular, a number of these tests avoid the necessity of providing an estimator for the Jacobian matrix that may be problematic for the sample sizes typically encountered in practice.
Pre-print version dated July 2008 issued as working paper by Institute for Fiscal Studies. Final version published by Cambridge University Press; available online at http://journals.cambridge.org/
Vol. 27, pp. 1 - 40