Higher-Order Improvements of a Computationally Attractive k-Step Bootstrap for Extremum Estimators

This paper establishes the higher-order equivalence of the k-step bootstrap, introduced recently by Davidson and MacKinnon (1999a), and the standard bootstrap. The k-step bootstrap is a very attractive alternative computationally to the standard bootstrap for statistics based on nonlinear extremum estimators, such as generalized method of moment and maximum likelihood estimators. The paper also extends results of Hall and Horowitz (1996) to provide new results regarding the higher-order improvements of the standard bootstrap and the k-step bootstrap for extremum estimators (compared to procedures based on first-order asymptotics).

The results of the paper apply to Newton-Raphson (NR), default NR, line-search NR, and Gauss-Newton k-step bootstrap procedures. The results apply to the nonparametric iid bootstrap, non-overlapping and overlapping block bootstraps, and restricted and unrestricted parametric bootstraps. The results cover symmetric and equal-tailed two-sided t tests and confidence intervals, one-sided t tests and confidence intervals, Wald tests and confidence regions, and J tests of over-identifying restrictions.

The optimal block length for the accuracy of tests and confidence intervals is shown to be proportional to N1/4 for both non-overlapping and overlapping block bootstraps in the context considered.

In addition, the paper provides some results that establish the equivalence of the higher-order efficiency of non-bootstrap k-step statistics and extremum statistics. These results extend results of Pfanzagl (1974), Robinson (1988), and others.

Keywords: Asymptotics, block bootstrap, Edgeworth expansion, extremum estimator, Gauss-Newton, generalized method of moments estimator, higher-order efficiency, k-step bootstrap, maximum likelihood estimator, Newton-Raphson, parametric bootstrap, t statistic, test of over-identifying restrictions