Small Sample Bias in GMM Estimation of Covariance Structures

Altonji, Joseph G.; Segal, Lewis M.

doi:10.3386/t0156

Cited by 183 publications

(102 citation statements)

References 22 publications

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“…remarked by Altonji and Segal [1996], which are primarily related to the terms outside the main diagonal of the optimal weighting matrix. Technical details are in Appendix A.3.…”

Section: Partial Insurancementioning

confidence: 99%

“…Take the consumption income model as in (4). With CRRA preferences, optimization implies the Euler equation C β−1 i,a−1,t−1 = (1 + r t−1 )e ∆Z 0 i,a,t ϑ t E a−1,t−1 C β−1 i,a,t and therefore, approximately, ∆ log C i,a,t ' ∆Z 0 i,a,t ϑ t + η i,a,t + Ω i,a,t where η i,a,t is a consumption shock with E a−1,t−1 η i,a,t = 0 and Ω i,a,t captures any slope in the consumption path due to interest rates, impatience or precautionary savings.…”

Section: A1 Appendix: the Euler Equation Approximationmentioning

confidence: 99%

“…As the variance increases the value of future participation increases, alleviating the participation constraint. 4 This is particularly relevant in the US and the UK, where quantitatively large changes in the structure of relative prices (most notably, wages) have occurred over the last three decades, both within and between groups. The results in Alvarez and Jermann also demonstrate that if income shocks are persistent enough and agents are infinitely lived, then participation constraints become so severe that no insurance scheme is feasible.…”

Section: Introductionmentioning

confidence: 99%

“…It is well known that the PSID contains longitudinal income data but the 4 Krueger and Perri [2003] investigate insurance of transitory shocks through analytic solution of simple models and simulation of more complex cases and demonstrate the possibility that consumption variance can actually fall with an increase in the variance of income shocks. information on consumption is scanty (limited to food and few more items).…”

Section: Introductionmentioning

confidence: 99%

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Consumption inequality and partial insurance

Blundell¹,

Pistaferri²,

Preston³

2004

Working Paper Series

536

1,008

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This paper examines the transmission of income inequality into consumption inequality and in so doing investigates the degree of insurance to income shocks. Panel data on income from the PSID is combined with consumption data from repeated CEX cross-sections to identify the degree of insurance to permanent and transitory shocks. In the process we also present new evidence of the growth in the variance of permanent and transitory shocks in the US during the 1980s. We find some partial insurance of permanent income shocks with more insurance possibilities for the college educated and those nearing retirement. We find little evidence against full insurance for transitory income shocks except among low income households. Tax and welfare benefits are found to play an important role in insuring permanent shocks. Adding durable expenditures to the consumption measure suggests that durable replacement is an important insurance mechanism, especially for transitory income shocks.

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“…remarked by Altonji and Segal [1996], which are primarily related to the terms outside the main diagonal of the optimal weighting matrix. Technical details are in Appendix A.3.…”

Section: Partial Insurancementioning

confidence: 99%

Section: A1 Appendix: the Euler Equation Approximationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Consumption inequality and partial insurance

Blundell¹,

Pistaferri²,

Preston³

2004

Working Paper Series

536

1,008

View full text Add to dashboard Cite

show abstract

“…See, for example, the theoretical discussion in Newey and Smith (2004), henceforth NS, and the simulation evidence in Altonji and Segal (1996), Imbens and Spady (2001), Judge and Mittelhammer (2001), Ramalho (2001) and Newey, Ramalho and Smith (2001). A number of alternative estimators have therefore been suggested which are first order asymptotically equivalent to GMM, including empirical likelihood (EL), [Owen (1988), Qin and Lawless (1994), and Imbens (1997)], the continuous updating estimator (CUE), [Hansen, Heaton, and Yaron (1996)], and exponential tilting (ET), [Kitamura and Stutzer (1997) and Imbens, Spady and Johnson (1998)].…”

Section: Introductionmentioning

confidence: 99%

Efficient information theoretic inference for conditional moment restrictions

Smith

2007

Journal of Econometrics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe generalized method of moments estimator may be substantially biased in finite samples, especially so when there are large numbers of unconditional moment conditions. This paper develops a class of first order equivalent semi-parametric efficient estimators and tests for conditional moment restrictions models based on a local or kernel-weighted version of the Cressie-Read power divergence family of discrepancies. This approach is similar in spirit to the empirical likelihood methods of Kitamura, Tripathi and Ahn (2004) and Tripathi and Kitamura (2003). These efficient local methods avoid the necessity of explicit estimation of the conditional Jacobian and variance matrices of the conditional moment restrictions and provide empirical conditional probabilities for the observations. JEL Classification: C12, C13, C14, C20, C30.

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Permanent and transitory wages of British men, 1975–2001: year, age and cohort effects

Kalwij¹,

Alessie²

2007

J of Applied Econometrics

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SUMMARYWe examine the mean and variance-covariance structure of log-wages over calendar time and the life cycle of British men, hereby controlling for birth cohort effects. We attribute the strong increase in mean log-wage during the 1980s and 1990s to a rise in mean log-wage with the year of birth. This rise is diminishing with the year of birth, which implies lower wage inequality between cohorts with the year of birth. Wage inequality has increased during the 1980s and early 1990s and remained fairly stable in the second half of the 1990s. The year effects, however, show increasing wage inequality up to 2001, mainly due to a strong rise in transitory wage inequality. Transitory wages are strongly correlated over time and an increase in transitory wage inequality therefore has highly persistent inequality consequences. The stable wage inequality in the second half of the 1990s is attributed to lower within-cohort wage inequality for the younger cohorts. The age effects show that permanent wage inequality increases with age, in particular up to age 30 and over age 50.

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Small Sample Bias in GMM Estimation of Covariance Structures

Cited by 183 publications

References 22 publications

Consumption inequality and partial insurance

Consumption inequality and partial insurance

Efficient information theoretic inference for conditional moment restrictions

Permanent and transitory wages of British men, 1975–2001: year, age and cohort effects

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