GMM inference when the number of moment conditions is large

Asymptotic theory typically presumes that the dimensionality of econometric models is independent of the sample size even though this presumption is o ften quite unrealistic. In GMM estimation, whenever optimal instruments are not available, it can frequently be shown that adding over-identifying res trictions (moment conditions) will increase asymptotic precision. However, the conventional asymptotics which underlies this view insists that the num ber of moment conditions remain finite even though the number of available moment conditions may grow without bound. We consider the explicit dependen ce of the number of moment conditions (or instruments), q(n), on the sample size, n, and establish that, under conventional regularity conditions for the estimation of a linear model with general heteroskedasticity, q(n)(3)/n --> 0 is a sufficient condition for the validity of conventional asymptoti c inference about the GMM estimator. (C) 1999 Published by Elsevier Science S.A. All rights reserved.