Generalized Spectral Estimation

This paper provides a framework for estimating parameters in a wide class of dynamic rational expectations models. The framework recognizes that dynamic RE models are often meant to match the data only in limited ways. In particular, interest may focus on a subset of frequencies. Thus, this paper designs a frequency domain version of GMM. The estimator has several advantages over traditional GMM. Aside from allowing band-restricted estimation, it does not require making arbitrary instrument or weighting matrix choices. The general estimation framework also includes least squares, maximum likelihood and band restricted maximum likelihood as special cases.