Question: Consider the just-identified model Y X0 11 X0 22 e with E[Ze] 0 where X (X0 1 X0 2)0 2 Rk

Consider the just-identified model Y Æ X0 1¯1 Å X0 2¯2 Åe with E[Ze] Æ 0 where X Æ (X0 1

X0 2)0 2 Rk and Z 2 Rk . We want to test H0 : ¯1 Æ 0. Three econometricians are called for advice.

• Econometrician 1 proposes testing H0 by aWald statistic.

• Econometrician 2 suggests testing H0 by the GMM Distance Statistic.

• Econometrician 3 suggests testing H0 using the test of overidentifying restrictions.

You are asked to settle this dispute. Explain the advantages and/or disadvantages of the different procedures in this specific context.

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