Boosting Your Instruments: Estimation with Overidentifying Inequality Moment Conditions

Frank Schorfheide and Hyungsik Moon ()

No 5605, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper derives limit distributions of empirical likelihood estimators for models in which inequality moment conditions provide overidentifying information. We show that the use of this information leads to a reduction of the asymptotic mean-squared estimation error and propose asymptotically valid confidence sets for the parameters of interest. While inequality moment conditions arise in many important economic models, we use a dynamic macroeconomic model as data generating process and illustrate our methods with instrumental variable estimators of monetary policy rules. The assumption that output does not fall in response to an expansionary monetary policy shock leads to an inequality moment condition that can substantially increase the precision with which the policy rule is estimated. The results obtained in this paper extend to conventional GMM estimators.

Keywords: Empirical likelihood estimation; Generalized method of movements; Inequality moment conditions; Instrumental variable estimation; Monetary policy rules (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-ecm and nep-mac
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Citations: View citations in EconPapers (12)

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Working Paper: Boosting Your Instruments: Estimation with Overidentifying Inequality Moment Conditions (2006)
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