IDEAS home Printed from https://ideas.repec.org/a/eee/ecosta/v11y2019icp83-104.html
   My bibliography  Save this article

The factor analytical method for interactive effects dynamic panel models with moving average errors

Author

Listed:
  • Norkutė, Milda
  • Westerlund, Joakim

Abstract

The estimation of dynamic panel data models with interactive effects and moving average errors is considered. This is accomplished by making an extension to the factor analytical (FA) estimator which was originally designed for dynamic panels with fixed effects only and serially uncorrelated errors. The results show that the additional allowances have no effect on the asymptotic properties of the FA estimator. In particular, the asymptotic distribution of the estimator is free of the otherwise so common bias problem, a result that is verified in small samples using Monte Carlo simulation.

Suggested Citation

  • Norkutė, Milda & Westerlund, Joakim, 2019. "The factor analytical method for interactive effects dynamic panel models with moving average errors," Econometrics and Statistics, Elsevier, vol. 11(C), pages 83-104.
    • Handle: RePEc:eee:ecosta:v:11:y:2019:i:c:p:83-104
    DOI: 10.1016/j.ecosta.2018.09.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2452306218300716
    Download Restriction: Full text for ScienceDirect subscribers only. Contains open access articles
    File URL: https://libkey.io/10.1016/j.ecosta.2018.09.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bun, Maurice J.G. & Carree, Martin A., 2005. "Bias-Corrected Estimation in Dynamic Panel Data Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 200-210, April.
    2. Gouriéroux, Christian & Phillips, Peter C.B. & Yu, Jun, 2010. "Indirect inference for dynamic panel models," Journal of Econometrics, Elsevier, vol. 157(1), pages 68-77, July.
    3. Maurice J. G. Bun & Frank Windmeijer, 2010. "The weak instrument problem of the system GMM estimator in dynamic panel data models," Econometrics Journal, Royal Economic Society, vol. 13(1), pages 95-126, February.
    4. Javier Alvarez & Manuel Arellano, 2003. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Econometrica, Econometric Society, vol. 71(4), pages 1121-1159, July.
    5. Gerdie Everaert & Tom De Groote, 2016. "Common Correlated Effects Estimation of Dynamic Panels with Cross-Sectional Dependence," Econometric Reviews, Taylor & Francis Journals, vol. 35(3), pages 428-463, March.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Yao, Qiwei & Brockwell, Peter J, 2006. "Gaussian maximum likelihood estimation for ARMA models. I. Time series," LSE Research Online Documents on Economics 57580, London School of Economics and Political Science, LSE Library.
    8. Bun, Maurice J.G. & Kiviet, Jan F., 2006. "The effects of dynamic feedbacks on LS and MM estimator accuracy in panel data models," Journal of Econometrics, Elsevier, vol. 132(2), pages 409-444, June.
    9. 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.
    10. Vasilis Sarafidis & Donald Robertson, 2009. "On the impact of error cross-sectional dependence in short dynamic panel estimation," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 62-81, March.
    11. Kruiniger, Hugo, 2008. "Maximum likelihood estimation and inference methods for the covariance stationary panel AR(1)/unit root model," Journal of Econometrics, Elsevier, vol. 144(2), pages 447-464, June.
    12. 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.
    13. Qiwei Yao & Peter J. Brockwell, 2006. "Gaussian Maximum Likelihood Estimation For ARMA Models. I. Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(6), pages 857-875, November.
    14. Hayakawa, Kazuhiko, 2015. "The Asymptotic Properties Of The System Gmm Estimator In Dynamic Panel Data Models When Both N And T Are Large," Econometric Theory, Cambridge University Press, vol. 31(3), pages 647-667, June.
    15. Han, Chirok & Phillips, Peter C.B., 2013. "First difference maximum likelihood and dynamic panel estimation," Journal of Econometrics, Elsevier, vol. 175(1), pages 35-45.
    16. Yong Bao, 2018. "The asymptotic covariance matrix of the QMLE in ARMA models," Econometric Reviews, Taylor & Francis Journals, vol. 37(4), pages 309-324, April.
    17. Jushan Bai, 2013. "Fixed‐Effects Dynamic Panel Models, a Factor Analytical Method," Econometrica, Econometric Society, vol. 81(1), pages 285-314, January.
    18. Lee, Yoonseok, 2012. "Bias in dynamic panel models under time series misspecification," Journal of Econometrics, Elsevier, vol. 169(1), pages 54-60.
    19. Hsiao, Cheng & Hashem Pesaran, M. & Kamil Tahmiscioglu, A., 2002. "Maximum likelihood estimation of fixed effects dynamic panel data models covering short time periods," Journal of Econometrics, Elsevier, vol. 109(1), pages 107-150, July.
    20. Maurice J. G. Bun, 2003. "Bias Correction in the Dynamic Panel Data Model with a Nonscalar Disturbance Covariance Matrix," Econometric Reviews, Taylor & Francis Journals, vol. 22(1), pages 29-58, February.
    21. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
    22. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    23. Everaert, Gerdie & Pozzi, Lorenzo, 2007. "Bootstrap-based bias correction for dynamic panels," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1160-1184, April.
    24. Yao, Qiwei & Brockwell, Peter J, 2006. "Gaussian maximum likelihood estimation for ARMA models II: spatial processes," LSE Research Online Documents on Economics 5416, London School of Economics and Political Science, LSE Library.
    25. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    26. Yao, Qiwei & Brockwell, Peter J., 2006. "Gaussian maximum likelihood estimation for ARMA models I: time series," LSE Research Online Documents on Economics 5825, London School of Economics and Political Science, LSE Library.
    27. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    28. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
    29. Gonçalves, Sílvia & Kaffo, Maximilien, 2015. "Bootstrap inference for linear dynamic panel data models with individual fixed effects," Journal of Econometrics, Elsevier, vol. 186(2), pages 407-426.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bao, Yong & Yu, Xuewen, 2023. "Indirect inference estimation of dynamic panel data models," Journal of Econometrics, Elsevier, vol. 235(2), pages 1027-1053.
    2. Breitung, Jörg & Kripfganz, Sebastian & Hayakawa, Kazuhiko, 2022. "Bias-corrected method of moments estimators for dynamic panel data models," Econometrics and Statistics, Elsevier, vol. 24(C), pages 116-132.
    3. Ignace De Vos & Gerdie Everaert & Ilse Ruyssen, 2015. "Bootstrap-based bias correction and inference for dynamic panels with fixed effects," Stata Journal, StataCorp LP, vol. 15(4), pages 986-1018, December.
    4. Ryo Okui, 2017. "Misspecification in Dynamic Panel Data Models and Model-Free Inferences," The Japanese Economic Review, Japanese Economic Association, vol. 68(3), pages 283-304, September.
    5. Norkutė, Milda & Westerlund, Joakim, 2021. "The factor analytical approach in near unit root interactive effects panels," Journal of Econometrics, Elsevier, vol. 221(2), pages 569-590.
    6. Maurice J.G. Bun & Martin A. Carree & Artūras Juodis, 2017. "On Maximum Likelihood Estimation of Dynamic Panel Data Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 463-494, August.
    7. Devdatta Ray & Mikael Linden, 2020. "Health expenditure, longevity, and child mortality: dynamic panel data approach with global data," International Journal of Health Economics and Management, Springer, vol. 20(1), pages 99-119, March.
    8. Jan Kiviet & Milan Pleus & Rutger Poldermans, 2017. "Accuracy and Efficiency of Various GMM Inference Techniques in Dynamic Micro Panel Data Models," Econometrics, MDPI, vol. 5(1), pages 1-54, March.
    9. In Choi & Sanghyun Jung, 2021. "Cross-sectional quasi-maximum likelihood and bias-corrected pooled least squares estimators for short dynamic panels," Empirical Economics, Springer, vol. 60(1), pages 177-203, January.
    10. Zhenlin Yang, 2014. "Initial-Condition Free Estimation of Fixed Effects Dynamic Panel Data Models," Working Papers 16-2014, Singapore Management University, School of Economics.
    11. Alexander Chudik & M. Hashem Pesaran & Jui‐Chung Yang, 2018. "Half‐panel jackknife fixed‐effects estimation of linear panels with weakly exogenous regressors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 816-836, September.
    12. Alexander Chudik & M. Hashem Pesaran, 2017. "A Bias-Corrected Method of Moments Approach to Estimation of Dynamic Short-T Panels," CESifo Working Paper Series 6688, CESifo.
    13. Alexander Chudik & M. Hashem Pesaran, 2017. "An Augmented Anderson-Hsiao Estimator for Dynamic Short-T Panels," Globalization Institute Working Papers 327, Federal Reserve Bank of Dallas, revised 27 Mar 2021.
    14. Jan F. Kiviet & Milan Pleus & Rutger Poldermans, 2014. "Accuracy and efficiency of various GMM inference techniques in dynamic micro panel data models," UvA-Econometrics Working Papers 14-09, Universiteit van Amsterdam, Dept. of Econometrics.
    15. Gouriéroux, Christian & Phillips, Peter C.B. & Yu, Jun, 2010. "Indirect inference for dynamic panel models," Journal of Econometrics, Elsevier, vol. 157(1), pages 68-77, July.
    16. Arturas Juodis, 2015. "Iterative Bias Correction Procedures Revisited: A Small Scale Monte Carlo Study," UvA-Econometrics Working Papers 15-02, Universiteit van Amsterdam, Dept. of Econometrics.
    17. Alexander Chudik & M. Hashem Pesaran & Jui-Chung Yang, 2016. "Half-panel jackknife fixed effects estimation of panels with weakly exogenous regressor," Globalization Institute Working Papers 281, Federal Reserve Bank of Dallas.
    18. Seo, Myung Hwan & Shin, Yongcheol, 2016. "Dynamic panels with threshold effect and endogeneity," Journal of Econometrics, Elsevier, vol. 195(2), pages 169-186.
    19. Badi H. Baltagi, 2021. "Dynamic Panel Data Models," Springer Texts in Business and Economics, in: Econometric Analysis of Panel Data, edition 6, chapter 0, pages 187-228, Springer.
    20. G. Everaert, 2009. "Using Backward Means to Eliminate Individual Effects from Dynamic Panels," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/553, Ghent University, Faculty of Economics and Business Administration.

    More about this item

    Keywords

    Interactive fixed effects; Dynamic panel data models; Moving average errors; Factor analytical method;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecosta:v:11:y:2019:i:c:p:83-104. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/econometrics-and-statistics .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.