24 April 2020

CEBI research titled “The Informativeness of Estimation Moments”

by Bo Honoré, Thomas H. Jørgensen and Áureo de Paulahas has been accepted for publication in Journal of Applied Econometrics.

 

General Method of Moments (GMM) is one of the most popular estimation approaches in economics. Still, how informative included moments are for parameter estimates remain largely a “black box”.

In this paper, we introduce measures for how each moment contributes to the precision of parameter estimates in GMM settings. For example, one of the measures asks what would happen to the variance of the parameter estimates if a particular moment was dropped from the estimation.

The measures are all easy to compute. We illustrate the usefulness of the measures through two simple examples as well as an application to a model of joint retirement planning of couples. We estimate the model using the UK-BHPS, and we find evidence of complementarities in leisure.

Our sensitivity measures illustrate that the estimate of the complementarity is primarily informed by the distribution of differences in planned retirement dates.

You can read more about the research in the working paper here