Generalized Method of Moments Estimators and Identification

D espite Emerson’s contempt for foolish consistency, consistency is not a foolish property for an estimator. Indeed, its absence would seem troubling. Who would want to admit that his or her estimator wouldn’t get the right answer with “all the data in the world”? Consequently, a widely applicable method for devising consistent estimators is a useful tool. This section develops two such tools, the method of moments and the generalized method of moments; these are the most recently popularized estimation techniques presented in this book. In addition to its usefulness in applications, method of moments estimation provides a natural bridge to a fundamental concept in econometrics, identification, which we’ll study in the next section.