Robust GMM Estimation of an Euler Equation Investment Model with German Firm Level Panel Data

In this paper the outlier robust GMM panel data estimator recently proposed by Lucas, van Dijk, and Kloek (1994)is applied to an Euler equation model of firm investment behaviour with imperfectly competitive product markets for a small panel of German nonfinancial stock companies. Plots for checking distributional implications and the selection of tuning constants are provided. Whereas the estimation results from the usual GMM estimator would contradict the theory, the empirical results using the robust GMM estimator largely support it.