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First Difference or Forward Orthogonal Deviation- Which Transformation Should be Used in Dynamic Panel Data Models?: A Simulation Study

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  • Kazuhiko Hayakawa

    ()
    (Hiroshima University)

Abstract

This paper compares the performances of the generalized method of moments (GMM) estimator of dynamic panel data model wherein unobserved individual effects are removed by the forward orthogonal deviation or the first difference. The simulation results show that the GMM estimator of the model transformed by the forward orthogonal deviation tends to work better than that transformed by the first difference.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I3-P49.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 3 ()
Pages: 2008-2017

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Handle: RePEc:ebl:ecbull:eb-09-00361

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Keywords: dynamic panel data model; first difference; forward orthogonal deviation; GMM;

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References

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  1. Maurice J.G. Bun & Jan F. Kiviet, 2002. "The Effects of Dynamic Feedbacks on LS and MM Estimator Accuracy in Panel Data Models," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-101/4, Tinbergen Institute, revised 19 Feb 2004.
  2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  3. Kazuhiko Hayakawa, 2007. "A Simple Efficient Instrumental Variable Estimator in Panel AR(p) Models," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d07-213, Institute of Economic Research, Hitotsubashi University.
  4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
  5. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 5-27, July.
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Citations

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Cited by:
  1. Mitreska, Ana & Kadievska Vojnovic, Maja & Georgievska, Ljupka & Jovanovic, Branimir & Petkovska, Marija, 2010. "Did the Crisis Change it All? Evidence from Monetary and Fiscal Policy," MPRA Paper 43163, University Library of Munich, Germany.
  2. Edoardo Gaffeo & Ronny Mazzocchi, 2014. "Competition in the banking sector and economic growth: panel-based international evidence," DEM Discussion Papers, Department of Economics and Management 2014/02, Department of Economics and Management.
  3. Rudolf Kubík, 2013. "Human Capital Quality and Economic Growth," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2013(1), pages 3-12.
  4. Vlaicu, Razvan & Verhoeven, Marijn & Grigoli, Francesco & Mills, Zachary, 2014. "Multiyear budgets and fiscal performance: Panel data evidence," Journal of Public Economics, Elsevier, Elsevier, vol. 111(C), pages 79-95.
  5. Richard Dennis, 2012. "Sources of Disagreement in Inflation Forecasts: An International Empirical Investigation," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2012-42, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. Abdul Karim, Zulkefly & Wan Ngah, Wan Azman Saini & Abdul Karim, Bakri, 2010. "Bank lending channel of monetary policy: dynamic panel data evidence from Malaysia," MPRA Paper 26157, University Library of Munich, Germany.
  7. Siklos, Pierre L., 2013. "Sources of disagreement in inflation forecasts: An international empirical investigation," Journal of International Economics, Elsevier, Elsevier, vol. 90(1), pages 218-231.
  8. Baum, Anja & Checherita-Westphal, Cristina & Rother, Philipp, 2012. "Debt and growth: new evidence for the euro area," Working Paper Series, European Central Bank 1450, European Central Bank.
  9. Abdul Karim, Zulkefly, 2010. "Monetary policy and firms’ investment: Dynamic panel data evidence from Malaysia," MPRA Paper 23962, University Library of Munich, Germany, revised 15 May 2010.
  10. Ana Mitreska & Maja Kadievska Vojnovic & Ljupka Georgievska & Branimir Jovanovic & Marija Petkovska, 2010. "Did The Crisis Change It All? Evidence From Monetary And Fiscal Policy," Working Papers, National Bank of the Republic of Macedonia 2010-05, National Bank of the Republic of Macedonia.
  11. Theofilakou, Nancy & Stournaras, Yannis, 2012. "Government solvency and financial markets: Dynamic panel estimates for the European Monetary Union," Economics Letters, Elsevier, Elsevier, vol. 115(1), pages 130-133.

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