This paper presents specification tests that are applicable after estimating a dynamic model from panel data by the generalized method of moments, and studies the practical performance of t…
This paper presents specification tests that are applicable after estimating a dynamic model from panel data by the generalized method of moments, and studies the practical performance of these procedures using both generated and real data. The authors' generalized method of moments estimator optimally exploits all the linear moment restrictions that follow from the assumption of no serial correlation in the errors in an equation which contains individual effects, lagged dependent variables, and no strictly exogenous variables. They propose a test of serial correlation based on the generalized method of moments residuals and compare this with Sargan tests of over-identifying restrictions and Hausman specification tests.