Efficiency comparison of system GMM estimators through Kantorovich inequality upper bounds

Abstract

This paper compares the efficiency of system generalized method of moments (GMM) estimator and the new system GMM estimator and also assesses the potential loss of efficiency of one-step system GMM estimator and new one-step system GMM estimator compared to their respective two-step GMM estimators by computing the Kantorovich Inequality Upper Bounds (KIUB). The KIUB is computed using the weight matrices of the one-step and the two-step GMM estimators. Here, the weight matrix of two-step system GMM estimator is computed using the one-step system GMM estimator without using limiting property. Through Monte-Carlo simulation we observe that the system GMM estimator involving new initial weight matrix has a minimum loss of efficiency compared to the system GMM estimator involving conventional initial weight matrix.