Table of Contents

Handbook of Research Methods and Applications in Empirical Macroeconomics

Handbook of Research Methods and Applications in Empirical Macroeconomics

Handbooks of Research Methods and Applications series

Edited by Nigar Hashimzade and Michael A. Thornton

This comprehensive Handbook presents the current state of art in the theory and methodology of macroeconomic data analysis. It is intended as a reference for graduate students and researchers interested in exploring new methodologies, but can also be employed as a graduate text. The Handbook concentrates on the most important issues, models and techniques for research in macroeconomics, and highlights the core methodologies and their empirical application in an accessible manner. Each chapter is largely self-contained, whilst the comprehensive introduction provides an overview of the key statistical concepts and methods. All of the chapters include the essential references for each topic and provide a sound guide for further reading.

Chapter 14: Generalized Method of Moments

Alastair R. Hall

Subjects: economics and finance, econometrics, research methods, research methods in economics

Extract

Generalized Method of Moments (GMM) estimation provides a computationally convenient way of estimating parameters of economic models. It can be applied equally in linear or non-linear models, in single equations or systems of equations, and to models involving cross-section, panel or time series data. This convenience and generality has led to the application of GMM in many areas of empirical economics, and the method is used frequently in macroeconomics. In fact, the emergence of GMM can be argued to be one of the most important developments in the econometric analysis of macroeconomic models over the last 35 years. The method was first introduced in a seminal paper by Lars Hansen published in Econometrica in 1982. While GMM had its origins in work on financial economics, it was also soon recognized that the method offered a relatively simple method for estimating the parameters of rational expectations models in macroeconomics. Early applications involved models for: business cycles (Singleton, 1988), consumption (Miron, 1986), interest rates (Dunn and Singleton, 1986), inventory holding (Miron and Zeldes, 1988) and labour demand (Pindyck and Rotemberg, 1983).

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