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January 8th, 2014, 03:16 AM   #1
Joined: Jan 2014

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Clarity required on Weighting matrix


I am performing a 2-step GMM estimation (General Method of Moments) and I require assistance on how to specify the initial weighting matrix. I am using the software program Stata I am using allows me to enter it in manually. Step 1 of a two-step GMM makes use of an identity matrix to compute a preliminary GMM estimate. This estimator will be consistent but not efficient. Step 2 is then to take the estimate we received from step 1 and plug it into a weighting matrix. This matrix converges in probability and therefore if we compute using this weighting matrix, the estimator will be asymptotically efficient. My problem is going from step 1 to step 2. I have the step 2 weighting matrix formula but I do not know how to put it in to use. Can anyone help me?

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