Effciency Gain of System GMM and MDE over Individual Equation Estimation

• Main Author: Lee, Myoung-jae
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2004
• Subjects: Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/490
• Institution: Singapore Management University

In the econometric literature it is known that, under certain conditions, estimating a system of equations together is more efficient than estimating each equation separately. This finding has been proved, however, only under the assumption of a known parametric form of heteroskedasticity (including homoskedasticity) or non-random regressors/instruments. This note shows that an analogous finding holds for GMM under heteroskedasticity of unknown form and random regressors/instruments. Specifically, I provide a necessary condition for the efficiency gain of the system GMM over the single-equation GMM. An analogous necessary condition for the efficiency gain is also shown to hold for minimum-distance (or?2) estimation (MDE).JEL Classification Number: C30. [ABSTRACT FROM AUTHOR]