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Local GMM estimation of time series models with conditional moment restrictions

Title:

Local GMM estimation of time series models with conditional moment restrictions

Gospodinov, Nikolay and Otsu, Taisuke (2012) Local GMM estimation of time series models with conditional moment restrictions. Journal of Econometrics . ISSN 03044076

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Official URL: http://dx.doi.org/10.1016/j.jeconom.2012.05.017

Abstract

This paper investigates statistical properties of the local generalized method of moments (LGMM) estimator for some time series models defined by conditional moment restrictions. First, we consider Markov processes with possible conditional heteroskedasticity of unknown forms and establish the consistency, asymptotic normality, and semi-parametric efficiency of the LGMM estimator. Second, we undertake a higher-order asymptotic expansion and demonstrate that the LGMM estimator possesses some appealing bias reduction properties for positively autocorrelated processes. Our analysis of the asymptotic expansion of the LGMM estimator reveals an interesting contrast with the OLS estimator that helps to shed light on the nature of the bias correction performed by the LGMM estimator. The practical importance of these findings is evaluated in terms of a bond and option pricing exercise based on a diffusion model for spot interest rate.

Divisions:Concordia University > Faculty of Arts and Science > Economics
Item Type:Article
Refereed:Yes
Authors:Gospodinov, Nikolay and Otsu, Taisuke
Journal or Publication:Journal of Econometrics
Date:2012
ID Code:974516
Deposited By:ANDREA MURRAY
Deposited On:02 Aug 2012 10:48
Last Modified:02 Aug 2012 10:48
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