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Small-Sample Properties of GMM-Based Wald Tests

Craig Burnside and Martin Eichenbaum
Journal of Business & Economic Statistics
Vol. 14, No. 3 (Jul., 1996), pp. 294-308
DOI: 10.2307/1392444
Stable URL: http://www.jstor.org/stable/1392444
Page Count: 15
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Small-Sample Properties of GMM-Based Wald Tests
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Abstract

This article assesses the small-sample properties of generalized-method-of-moments-based Wald statistics by using (a) a vector white-noise process and (b) an equilibrium business-cycle model as the data-generating mechanisms. In many cases, the small-sample size of the Wald tests exceeds its asymptotic size and increases sharply with the number of hypotheses being jointly tested. We argue that this is mostly due to difficulty in estimating the spectral-density matrix of the residuals. Estimators of this matrix that impose restrictions implied by the model or the null hypothesis substantially improve the properties of the Wald statistics.

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