Generalized Method of Moments

Abstract

The generalized method of moments (GMM) is a conceptually simple and flexible estimation method that has come to play an increasingly prominent role in empirical research in economics over the last 30 years. Application of GMM requires the availability of so-called moment equations or moment conditions. There should be at least as many moment equations as there are parameters to be estimated. If this condition is satisfied (plus some regularity conditions), application of GMM is in principle straightforward and delivers estimators for the parameters that are consistent and asymptotically normal. If desired, the estimators can in addition be made asymptotically efficient given the available moment equations, that is, have the lowest achievable variance or highest precision asymptotically.