Gmm estimation example

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Example: IV estimation of linear model • Linear IV framework: y = X θ0 + ε, with E[X´ε] ≠ 0. • Let Z be a Txq vector of IV –i.e., E[Z´ε] = 0. and E[Z´X] ≠ 0. • We want to estimate θ0 using GMM.Then, the GMM estimator θ*T = argminθε {QT(θ) = [T-1 ε(θ)’Z] W T [T-1Z’ ε(θ)]} (kx1) f.o.c.: (T-1Z’X)-1W T (T-1 Z’ε(θ* T)) = 0 or CHAPTER 3. GENERALIZED METHOD OF MOMENTS 1. INTRODUCTION This chapter outlines the large-sample theory of Generalized Method of Moments (GMM) estimation and hypothesis testing. The properties of consistency and asymptotic normality (CAN) of GMM estimates hold under regularity conditions much like those under which maximum CHAPTER 11. THE GMM ESTIMATION 6 But this is equivalent to the first-order condition for the OLS estimation. Hence, the OLS estimator, which are solved from the above sample moment conditions, can be considered as a GMM estimator. In order to apply the asymptotic theory for the GMM estimation, we need to first evaluate 3 I am interested in using some of the additional features in the gmm package in R to estimate GMM in panel data. Specifically, I am interested in first estimating difference GMM and then later on estimating a collapsed version of system GMM with panel data. One of the simplest ways to demonstrate the way gmm, and the gmm package work is to estimate the paramaters of a normal distribution. This is the example that the creator of the gmm package (Pierre Chaussé) uses so it will be similar to his. GMM and related IV estimators are still in the sandbox and have not been included in the statsmodels API yet. The import needs to be directly from the module. from statsmodels.sandbox.regression import gmm Then, these classes can be accessed with, for example gmm.GMM. The main models that are currently available are: Notes On Method-of-Moments Estimation James L. Powell Department of Economics University of California, Berkeley Unconditional Moment Restrictions and Optimal GMM Most estimation methods in econometrics can be recast as method-of-moments estimators, where the p-dimensional parameter of interest θ0 is assumed to satisfy an unconditional moment ... Moreover, in GMM estimation, the emphasis on statistical efficiency is weakened in order to accommodate partially specified models. Finally, an explicit time series structure is added, when appropriate. 3 GMM Estimation Our treatment of GMM estimation follows Hansen (1982), but it builds from Sargan (1958) I describe how the method of moments approach to estimation, including the more recent generalized method of moments (GMM) theory, can be applied to problems using cross section, time series, and ... A quick introduction to GMM. What is GMM? The generalize method of moments (GMM) is a general framework for deriving estimators Maximum likelihood (ML) is another general framework for deriving estimators. For example, for GMM equations estimated using the Two-stage least squares weighting matrix, will contain (where the estimator for the variance will use or the no d.f. corrected equivalent, depending on your options for coefficient covariance calculation). Equations estimated with a White weighting matrix will return. Example: IV estimation of linear model • Linear IV framework: y = X θ0 + ε, with E[X´ε] ≠ 0. • Let Z be a Txq vector of IV –i.e., E[Z´ε] = 0. and E[Z´X] ≠ 0. • We want to estimate θ0 using GMM.Then, the GMM estimator θ*T = argminθε {QT(θ) = [T-1 ε(θ)’Z] W T [T-1Z’ ε(θ)]} (kx1) f.o.c.: (T-1Z’X)-1W T (T-1 Z’ε(θ* T)) = 0 or Using the gmm command Several linear examples Nonlinear GMM Summary. GMM Estimation in Stata. Econometrics I Ricardo Mora . Department of Economics Universidad Carlos III de Madrid Master in Industrial Economics and Markets. Ricardo Mora GMM estimation. 1 Thank you for your help. Since the limitation of the sample, I only have 6 periods of observation (T=6). So in the estimation, when I use L3.x for the instrumental variables, then I have 3 observation periods left. Could you tell me how to improve the result with these small sample? 1 Teaching notes on GMM 1. Generalized Method of Moment (GMM) estimation is one of two developments in economet-rics in the 80ies that revolutionized empirical work in macroeconomics. (The other being the understanding of unit roots and cointegration.) The path breaking articles on GMM were those of Hansen (1982) and Hansen and Singleton (1982). I am interested in using some of the additional features in the gmm package in R to estimate GMM in panel data. Specifically, I am interested in first estimating difference GMM and then later on estimating a collapsed version of system GMM with panel data. I am interested in using some of the additional features in the gmm package in R to estimate GMM in panel data. Specifically, I am interested in first estimating difference GMM and then later on estimating a collapsed version of system GMM with panel data. Example: IV estimation of linear model • Linear IV framework: y = X θ0 + ε, with E[X´ε] ≠ 0. • Let Z be a Txq vector of IV –i.e., E[Z´ε] = 0. and E[Z´X] ≠ 0. • We want to estimate θ0 using GMM.Then, the GMM estimator θ*T = argminθε {QT(θ) = [T-1 ε(θ)’Z] W T [T-1Z’ ε(θ)]} (kx1) f.o.c.: (T-1Z’X)-1W T (T-1 Z’ε(θ* T)) = 0 or Aug 26, 2014 · Generalized Method of Moments (GMM) provides a computationally convenient method for estimating the parameters of statistical models based on the information in population moment conditions. Three-stage Least Squares (3SLS)¶ This example demonstrates how a system of simultaneous equations can be jointly estimated using three-stage least squares (3SLS). The simultaneous equations model the wage and number of hours worked. The two equations are Example of GMM training. ... Bayesian methods also allow us to estimate uncertainty in predictions, which is a desirable feature for fields like medicine. When ... Below is the command I used to estimate equation (1) followed by the Stata output: xtabond2 inv l.inv fdi loans portfolio l.growth uncert tot dev_m2, gmm (inv fdi loans portfolio, lag (2 2)) iv ... Three-stage Least Squares (3SLS)¶ This example demonstrates how a system of simultaneous equations can be jointly estimated using three-stage least squares (3SLS). The simultaneous equations model the wage and number of hours worked. The two equations are You fit these equations by specifying the iterated GMM option using a Parzen kernel. Iterated GMM re-estimates the variance matrix at each iteration with the parameters determined by the GMM estimation from the previous iteration. See Ferson and Foerster (1994) for a discussion of iterated GMM. GMM estimation. In some cases in which the distribution of the data is known, MLE can be computationally very burdensome whereas GMM can be computationally very easy. The log-normal stochastic volatility model is one example. In models for which there are more moment conditions than model parameters, GMM estimation provides a straightforward way to test Non-linear IV Estimation Summary GMM one way to improve the estimation is by adding new exogenous variables so that m (b )=å ij (T ij exp (x ij b))z ij GMM in this context provides consistent estimates for non-linear IV estimation Ricardo Mora GMM: Examples GMM as Density Estimation¶ Though GMM is often categorized as a clustering algorithm, fundamentally it is an algorithm for density estimation . That is to say, the result of a GMM fit to some data is technically not a clustering model, but a generative probabilistic model describing the distribution of the data. 1 Teaching notes on GMM 1. Generalized Method of Moment (GMM) estimation is one of two developments in economet-rics in the 80ies that revolutionized empirical work in macroeconomics. (The other being the understanding of unit roots and cointegration.) The path breaking articles on GMM were those of Hansen (1982) and Hansen and Singleton (1982). GMM as Density Estimation¶ Though GMM is often categorized as a clustering algorithm, fundamentally it is an algorithm for density estimation . That is to say, the result of a GMM fit to some data is technically not a clustering model, but a generative probabilistic model describing the distribution of the data. I am interested in using some of the additional features in the gmm package in R to estimate GMM in panel data. Specifically, I am interested in first estimating difference GMM and then later on estimating a collapsed version of system GMM with panel data. CHAPTER 11. THE GMM ESTIMATION 6 But this is equivalent to the first-order condition for the OLS estimation. Hence, the OLS estimator, which are solved from the above sample moment conditions, can be considered as a GMM estimator. In order to apply the asymptotic theory for the GMM estimation, we need to first evaluate 3 Motivation Using the gmm command Several linear examples Nonlinear GMM Summary GMM Estimation in Stata Econometrics I Ricardo Mora Department of Economics Gaussian Mixture Models (GMM) and ML Estimation Examples. Mean and Variance of Gaussian. • Consider the Gaussian PDF: Given the observations (sample) Form the log-likelihood function Take the derivatives wrt! #$% & and set it to zero. 3 Let us look at the log likelihood function l(µ) = logL(µ)=. Xn i=1. logP(Xi|µ) =2. gmm automatically excludes observations for which no valid instruments are available. It does, however, include observations for which only a subset of the lags is available. For example, if you request that lags one through three be used, then gmm will include the observations for the second CHAPTER 11. THE GMM ESTIMATION 6 But this is equivalent to the first-order condition for the OLS estimation. Hence, the OLS estimator, which are solved from the above sample moment conditions, can be considered as a GMM estimator. In order to apply the asymptotic theory for the GMM estimation, we need to first evaluate 3 Thank you for your help. Since the limitation of the sample, I only have 6 periods of observation (T=6). So in the estimation, when I use L3.x for the instrumental variables, then I have 3 observation periods left. Could you tell me how to improve the result with these small sample?