Inference on conditional moment restriction models with generated variables

A seminal work by Domínguez and Lobato (2004) proposed a consistent estimation method for conditional moment restrictions, which does not rely on additional identification assumptions as in the GMM estimator using unconditional moments and is free from any userchosen number. Their methodology is further extended by Domínguez and Lobato (2015, 2020) for consistent specification testing of conditional moment restrictions, which may involve generated variables. We follow up this literature and derive the asymptotic distribution of Domínguez and Lobato’s (2004) estimator that involves generated variables. Our simulation result illustrates that ignoring proxy errors in the generated variables may cause severer distortions for the coverage or size properties of statistical inference on parameters.