Local GEL methods for conditional moment restrictions

Abstract

Introduction Simulation evidence increasingly indicates that for many models specified by unconditional moment restrictions the generalized method of moments (GMM) estimator (Hansen, 1982) may be substantially biased in finite samples, especially so when there are large numbers of moment conditions. See, for example, Altonji and Segal (1996), Imbens and Spady (2001), Judge and Mittelhammer (2001), Ramalho (2001) and Newey, Ramalho and Smith (2005). Newey and Smith (2004), henceforth NS, provides theoretical underpinning for these findings. Alternative estimators which are first-order asymptotically equivalent to GMM include empirical likelihood (EL) (Owen, 1988; Qin and Lawless, 1994; and Im..