| Working
Paper 04-2
by Jeffrey C. Fuhrer
and Giovanni P.
Olivei
This paper compares different methods for estimating
forward-looking output and inflation Euler equations
and shows that weak identification can be an issue in
conventional GMM estimation. The authors propose a GMM
procedure that imposes the dynamic constraints implied
by the forward-looking relation on the instruments set.
This “optimal instruments” procedure is
more reliable than conventional GMM, and it provides
a robust alternative to estimating dynamic macroeconomic
relations. Empirical applications of this procedure
suggest only a limited role for expectational terms.
JEL classification codes: C1, C15, E3
PDF version of paper 
Matlab data:
The associated programs are in the "GMM_bias" folder of matlab.zip (17.2MB, updated February 20, 2007).
If you have any problems with the files, please contact:
Adam Shapiro
617-973-3288 |
