The principal purpose of this paper is to describe the performance of generalized empirical likelihood (GEL) methods for time series instrumental variable models specified by nonlinear moment restrictions when identification may be weak. The paper makes two main contributions. Firstly, we show that all GEL estimators are first-order equivalent under weak identification. The GEL estimator under weak identification is inconsistent and has a nonstandard asymptotic distribution. Secondly, the paper proposes new GEL test statistics, which have chi-square asymptotic null distributions independent of the strength or weakness of identification. Consequently, unlike those for Wald and likelihood ratio statistics, the size of tests formed from these statistics is not distorted by the strength or weakness of iden- tification. Modified versions of the statistics are presented for tests of hypotheses on parameter subvectors when the parameters not under test are strongly identified. Monte Carlo results for the linear instrumental variable regression model suggest that tests based on these statistics have very good size properties even in the presence of conditional heteroskedasticity. The tests have competitive power properties, especially for thick tailed or asymmetric error distributions.
Centre for microdata methods and practice