In GMM, the efficient weight matrix minimizes the asymptotic variance of the GMM estimator by setting:

$$ W_T^{opt} = S_T^{-1}$$

where $S_T$ is an estimator of the asymptotic variance of the moments, $S = Var(\sqrt{T}g_T(\beta))$.

In my textbook, it says:

How to estimate $S_T$ depends on whether the moments are:

  1. IID over time
  2. independent over time, but heteroskedastic
  3. autocorrelated and heteroskedastic over time

My question is: how do we test in which of the three cases we are?


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.