The PCSE Estimator is Good -- Just Not As Good As You Think
AbstractThis paper investigates the properties of the Panel-Corrected Standard Error (PCSE) estimator. The PCSE estimator is commonly used when working with time-series, cross-sectional (TSCS) data. In an influential paper, Beck and Katz (1995) (henceforth BK) demonstrated that FGLS produces coefficient standard errors that are severely underestimated. They report Monte Carlo experiments in which the PCSE estimator produces accurate standard error estimates at no or little loss in efficiency compared to FGLS. Our study further investigates the properties of the PCSE estimator. We first reproduce the main experimental results of BK using their Monte Carlo framework. We then show that the PCSE estimator does not perform as well when tested in data environments that better resemble practical research situations. When (i) the explanatory variable(s) are characterized by substantial persistence, (ii) there is serial correlation in the errors, and (iii) the time span of the data series is relatively short, coverage rates for the PCSE estimator frequently fall between 80 and 90 percent. Further, we find many practical research situations where the PCSE estimator compares poorly with FGLS on efficiency grounds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal Journal of Time Series Econometrics.
Volume (Year): 2 (2010)
Issue (Month): 1 (September)
Contact details of provider:
Web page: http://www.degruyter.com
Other versions of this item:
- W. Robert Reed & Rachel Webb, 2010. "The PCSE Estimator is Good -- Just Not as Good as You Think," Working Papers in Economics 10/53, University of Canterbury, Department of Economics and Finance.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Noy, Ilan, 2009.
"The macroeconomic consequences of disasters,"
Journal of Development Economics,
Elsevier, vol. 88(2), pages 221-231, March.
- Reed, W. Robert & Webb, Rachel S., 2010.
"Estimating standard errors for the Parks model: Can jackknifing help?,"
Economics Discussion Papers
2010-23, Kiel Institute for the World Economy.
- Reed, W. Robert & Webb, Rachel S., 2011. "Estimating standard errors for the Parks model: Can jackknifing help?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 5(1), pages 1-14.
- W. Robert Reed & Rachel S. Webb, 2009. "Estimating Standard Errors For The Parks Model: Can Jackknifing Help?," Working Papers in Economics 09/18, University of Canterbury, Department of Economics and Finance.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.