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Maximum Likelihood Estimation in Panels with Incidental Trends

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  • Moon, Hyungsik R
  • Phillips, Peter C B

Abstract

It is shown that the maximum likelihood estimator of a local to unity parameter can be consistently estimated with panel data when the cross-section observations are independent. Consistency applies when there are no deterministic trends or when there is a homogeneous deterministic trend in the panel model. When there are heterogeneous deterministic trends the panel MLE of the local to unity parameter is inconsistent. This outcome provides a new instance of inconsistent ML estimation in dynamic panels, and, unlike earlier results of this type, applies when both T approaches infinity and N approaches infinity. Copyright 1999 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 61 (1999)
Issue (Month): 0 (Special Issue Nov.)
Pages: 711-47

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Handle: RePEc:bla:obuest:v:61:y:1999:i:0:p:711-47

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References

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  1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  2. Moon, Hyungsik R. & Phillips, Peter C.B., 1999. "Estimation of Autoregressive Roots near Unity using Panel Data," University of California at Santa Barbara, Economics Working Paper Series qt7fd8x80m, Department of Economics, UC Santa Barbara.
  3. Peter C.B. Phillips & Hyungsik R. Moon & Zhijie Xiao, 1998. "How to Estimate Autoregressive Roots Near Unity," Cowles Foundation Discussion Papers 1191, Cowles Foundation for Research in Economics, Yale University.
  4. Phillips, Peter C B & Xiao, Zhijie, 1998. " A Primer on Unit Root Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 423-69, December.
  5. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
  6. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
  7. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  8. Peter C.B. Phillips & Chin Chin Lee, 1996. "Efficiency Gains from Quasi-Differencing Under Nonstationarity," Cowles Foundation Discussion Papers 1134, Cowles Foundation for Research in Economics, Yale University.
  9. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  10. Alvarez, J. & Arellano, M., 1998. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Papers 9808, Centro de Estudios Monetarios Y Financieros-.
  11. Stock, James H., 1991. "Confidence intervals for the largest autoregressive root in U.S. macroeconomic time series," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 435-459, December.
  12. Xiao, Zhijie & Phillips, Peter C.B., 1999. "Efficient Detrending In Cointegrating Regression," Econometric Theory, Cambridge University Press, vol. 15(04), pages 519-548, August.
  13. Cavanagh, Christopher L. & Elliott, Graham & Stock, James H., 1995. "Inference in Models with Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1131-1147, October.
  14. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  15. repec:cup:etheor:v:11:y:1995:i:5:p:1131-47 is not listed on IDEAS
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Citations

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Cited by:
  1. Karavias, Yiannis & Tzavalis, Elias, 2012. "On the Local Power of Fixed T Panel Unit Root Tests with Serially Correlated Errors," MPRA Paper 43131, University Library of Munich, Germany.
  2. Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
  3. repec:mtl:montec:18-2002 is not listed on IDEAS
  4. Hyungsik Roger Moon & Peter C.B. Phillips, 2003. "GMM Estimation of Autoregressive Roots Near Unity with Panel Data," Cowles Foundation Discussion Papers 1390, Cowles Foundation for Research in Economics, Yale University.
  5. Erik Hjalmarsson, 2005. "Estimation of average local-to-unity roots in heterogenous panels," International Finance Discussion Papers 852, Board of Governors of the Federal Reserve System (U.S.).
  6. Phillips, Peter C.B. & Sul, Donggyu, 2007. "Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence," Journal of Econometrics, Elsevier, vol. 137(1), pages 162-188, March.
  7. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.
  8. Moon, Hyungsik Roger & Perron, Benoit & Phillips, Peter C.B., 2007. "Incidental trends and the power of panel unit root tests," Journal of Econometrics, Elsevier, vol. 141(2), pages 416-459, December.
  9. Jukka Topi & Jouko Vilmunen, 2001. "Transmission of monetary policy shocks in Finland: evidence from bank level data on loans," Working Paper Series 100, European Central Bank.
  10. Win Chou & Dominica Lee, 2005. "Panel Cointegration Analysis of Audit Pricing Model," Review of Quantitative Finance and Accounting, Springer, vol. 24(4), pages 423-439, June.

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