Econometrica: May, 2005, Volume 73, Issue 3

GMM, GEL, Serial Correlation, and Asymptotic Bias

https://doi.org/10.1111/j.1468-0262.2005.00601.x
p. 983-1002

Stanislav Anatolyev

For stationary time series models with serial correlation, we consider generalized method of moments (GMM) estimators that use heteroskedasticity and autocorrelation consistent (HAC) positive definite weight matrices and generalized empirical likelihood (GEL) estimators based on smoothed moment conditions. Following the analysis of Newey and Smith (2004) for independent observations, we derive second order asymptotic biases of these estimators. The inspection of bias expressions reveals that the use of smoothed GEL, in contrast to GMM, removes the bias component associated with the correlation between the moment function and its derivative, while the bias component associated with third moments depends on the employed kernel function. We also analyze the case of no serial correlation, and find that the seemingly unnecessary smoothing and HAC estimation can reduce the bias for some of the estimators.