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Panel data dynamics with mis-measured variables: modeling and GMM estimation

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  • Erik Biørn

Abstract

Generalized Method of Moments (GMM) estimation is discussed under the joint occurrence of fixed effects and random measurement errors in an autoregressive panel data model. Finite memory of measurement errors is allowed for. Two GMM specializations are considered: (i) using instruments (IVs) in levels for a differenced version of the equation and (ii) using IVs in differences for the level version. Index sets for lags and leads are convenient in examining how the potential IV-set is affected by changes in the memory pattern. While measurement errors with long memory may give an IV-set too small for identification, problems of “IV proliferation” and “weak IVs” may arise unless the panel is short. An application based on data for (log-transformed) capital stock and output from Norwegian manufacturing firms, supplemented with Monte Carlo simulations, to illustrate finite sample biases, is considered. Overall, with respect to bias and IV strength, GMM specialization (ii) seems superior to inference using GMM specialization (i). Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Erik Biørn, 2015. "Panel data dynamics with mis-measured variables: modeling and GMM estimation," Empirical Economics, Springer, vol. 48(2), pages 517-535, March.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:2:p:517-535
    DOI: 10.1007/s00181-014-0802-1
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    More about this item

    Keywords

    Panel data; Measurement error; Dynamic modeling ; GMM; Monte Carlo simulation; C21; C23; C31; C33; C51; E21;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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