tag:blogger.com,1999:blog-17232051.post412688738061963193..comments2023-02-05T03:24:30.983-05:00Comments on Noahpinion: Lars Peter Hansen explained. Kind of.Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-17232051.post-65317488762783608312013-10-18T07:41:16.754-04:002013-10-18T07:41:16.754-04:00They don’t mind GMM and spending a week or two tea...They don’t mind GMM and spending a week or two teaching it, but they tend to think that making GMM the basis of all econometrics is putting the cart before the horse.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73595993955324666172013-10-18T01:27:04.979-04:002013-10-18T01:27:04.979-04:00Why do the old timers shake heads at Hayashi? Why do the old timers shake heads at Hayashi? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-46738164720571971652013-10-17T01:26:55.188-04:002013-10-17T01:26:55.188-04:00Yes, Hansen and Shiller made perfect sense as Nobe...Yes, Hansen and Shiller made perfect sense as Nobel winners, and Hansen made perfect sense as a Nobel winner, but the three of them together was puzzling to me until I read your explanation. But even so, I think Hansen should've won a separate Nobel, or one in conjunction with other econometricians, rather than being lumped in with finance guys.MKTnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-2357627644717093542013-10-16T14:14:11.890-04:002013-10-16T14:14:11.890-04:00Seems like much to-do about nothing. A sort of lea...Seems like much to-do about nothing. A sort of least squares fit algorithm for c rappy parametric models with sparse data. This is worthy of a Nobel? even more scary, central bank models depend on this? E-gad, we're in worse shape than I thought...Ray Lopezhttps://www.blogger.com/profile/11134761834999705305noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-78148051878661426102013-10-15T08:19:35.757-04:002013-10-15T08:19:35.757-04:00I haven’t touched on the computational aspects of ...I haven’t touched on the computational aspects of GMM. As you can imagine, for linear (and possibly other) models, there are closed form solutions. (Obviously, in the case of models that reduce to OLS and such.) Otherwise it’s a matter of using numerical root finding methods.<br /><br />GMM has its origins in asset pricing. Every econometrics sequence teaches some GMM, but not all professors make it the unifying framework in the way that Hayashi does, and in some departments that approach would be regarded as a little eccentric.<br /><br />I use MathJax for math in blog posts.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40275089203589451172013-10-15T06:30:45.849-04:002013-10-15T06:30:45.849-04:00This is very interesting. I'm a statistician, ...This is very interesting. I'm a statistician, and basically all statistical inference that is taught in statistics is maximum likelihood. You mention that a weakness of maximum likelihood is the need to make parametric assumptions. Fitting non-parametric models is done usually with spline methods in statistics.<br /><br />I've never seen GMM taught before. So this post makes me wonder why this isn't taught in statistics, given that GMM is also a generalization of maximum likelihood according to this post. Any thoughts?<br /><br />Also, how do you include LaTeX in blog posts?Kevinnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81856588520078564942013-10-15T02:15:10.697-04:002013-10-15T02:15:10.697-04:00Good to see one of the backup team interacting wit...Good to see one of the backup team interacting with the prizes and trying to provide some background. Extra kudos for taking on the hardest one. A bit disappointing that with 8 authors on the list to the right of the page, and 3 winners, we only got one post on the prize today.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30125536720832712013-10-14T17:09:24.526-04:002013-10-14T17:09:24.526-04:00Aaaaah right. Many thanks.Aaaaah right. Many thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-36160527894902004992013-10-14T16:41:45.607-04:002013-10-14T16:41:45.607-04:00That, and no t superscript on beta. That, and no t superscript on beta. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61794636325522647852013-10-14T16:08:18.226-04:002013-10-14T16:08:18.226-04:00I added 1/T in front, is that what you meant?I added 1/T in front, is that what you meant?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33072207158105794242013-10-14T14:18:38.621-04:002013-10-14T14:18:38.621-04:00Shouldn't (4) have 1/beta instead of beta^t if...Shouldn't (4) have 1/beta instead of beta^t if it's taking a sample average?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66427480803243213822013-10-14T13:38:54.696-04:002013-10-14T13:38:54.696-04:00The coefficient of relative risk aversion (-cu'...The coefficient of relative risk aversion (-cu''/u') isn't gamma in your example, it's 1-gamma.<br /><br />I wouldn't say Hansen's insight was that moments could be used for estimation. As the link indicates, that was known for a while. It was about how one could use the 'extra' moment conditions that often crop up.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-77307897358116347272013-10-14T13:34:45.087-04:002013-10-14T13:34:45.087-04:00Good catch, I have fixed that. Equation 3 shouldn’...Good catch, I have fixed that. Equation 3 shouldn’t because that is a view of the optimization problem over a single period from time t to time t + 1.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-44497329063787996312013-10-14T13:34:36.277-04:002013-10-14T13:34:36.277-04:00The Nobel Prize committee honored Lars Peter Hanse...The Nobel Prize committee honored Lars Peter Hansen for his work in developing a statistical method for testing rational theories of asset price movements. The statistical method Hansen developed is Generalized Method of Moments (GMM). The fact that Hansen won the Nobel Prize for his “empirical analysis of asset prices” caught me off guard as I did not realize this was the original application of GMM. <br /><br />GMM is used in the estimation of the New Keynesian Phillips Curve. The New Keynesian Phillips Curve includes expectations of future inflation as an idependent variable. Since inflation expectations cannot really be observed, GMM offers a way around this difficulty. <br /><br />The New Keynesian Phillips Curve, which was developed in 1995, is integral to most DSGE models that central banks across the globe are increasingly dependent. Thus it’s hard to imagine modern central banking without Hansen’s contributions to econometrics. So for Hansen to have won the prize for his empirical analysis of asset prices strikes me as somewhat ironic. Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86190333589346582822013-10-14T13:30:39.107-04:002013-10-14T13:30:39.107-04:00Thanks for the helpful primer! Quick q, shouldn...Thanks for the helpful primer! Quick q, shouldn't equations 2, 3 and 4 have beta^t so that later periods are discounted more heavily?LPnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-34785714397084637322013-10-14T13:23:07.472-04:002013-10-14T13:23:07.472-04:00Nice explanation, but let's not forget that th...Nice explanation, but let's not forget that the J test is really just Sargan's old test of over-identification, re-visited.Dave Gileshttps://www.blogger.com/profile/05389606956062019445noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-13348561854084909922013-10-14T11:28:16.963-04:002013-10-14T11:28:16.963-04:00Great explanation. I think one of the great things...Great explanation. I think one of the great things about GMM is that it allows us to estimate a single equation from a model without assuming that the entire model is "true." Additionally, an underappreciated aspect of GMM is that it shows how silly the structural vs. reduced form debate is. Viewed through the lens of GMM (which as you note is a generalization of OLS), this debate reduces to a differences in functional form.Ryan Deckerhttps://www.blogger.com/profile/03060713323484397524noreply@blogger.com