Abstract
This paper proposes the shrinkage generalized method of moments estimator to address the “many moment conditions” problem in the estimation of conditional moment restriction models. This estimator is obtained as the minimizer of the function constructed by modifying the GMM objective function, such that we shrink the effect of a subset of moment conditions that are less important and used only for efficiency. We provide the closed form of the shrinkage parameter that minimizes the asymptotic mean squared error. A simulation study shows encouraging results.
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