Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration

Contents:

Author Info

Abstract

This paper considers estimation and inference in panel vector autoregressions (PVARs) with fixed effects when the time dimension of the panel is finite, and the cross-sectional dimension is large. A Maximum Likelihood (ML) estimator based on a transformed likelihood function is proposed and shown to be consistent and asymptotically normally distributed irrespective of the unit root and cointegrating properties of the underlying PVAR model. The transformed likelihood framework is also used to derive unit root and cointegration tests in panels with short time dimension; these tests have the attractive feature that they are based on standard chi-squared and normal distributed statistics. Examining Generalised Method of Moments (GMM) estimation as an alternative to our proposed ML estimator, it is shown that conventional GMM estimators based on standard orthogonality conditions break down if the underlying time series contain unit roots.

Download Info

If 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.
File URL: http://www.econ.cam.ac.uk/faculty/pesaran/PvarRevOct03.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Howard Cobb)
Download Restriction: no

Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0003.

as in new window
Length:
Date of creation: Apr 2000
Date of revision:
Handle: RePEc:cam:camdae:0003

Note: EM
Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: Panel vector autoregressions; Fixed effects; Unit roots; Cointegration;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Arellano, M. & Honore, B., 2000. "Panel Data Models: Some Recent Developments," Papers 0016, Centro de Estudios Monetarios Y Financieros-.
  2. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  3. Pesaran, M. H. & Binder, M., 1997. "Solution of Multivariate Linear Rational Expectations Models and Large Sparse Linear Systems," Cambridge Working Papers in Economics 9708, Faculty of Economics, University of Cambridge.
  4. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  5. Peter Phillips & Hyungsik Moon, 2000. "Nonstationary panel data analysis: an overview of some recent developments," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 263-286.
  6. Hahn, Jinyong, 1999. "How informative is the initial condition in the dynamic panel model with fixed effects?," Journal of Econometrics, Elsevier, vol. 93(2), pages 309-326, December.
  7. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  9. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  10. M Pesaran & Yongcheol Shin, 2004. "Long-Run Structural Modelling," ESE Discussion Papers 44, Edinburgh School of Economics, University of Edinburgh.
  11. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
  12. 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.
  13. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  14. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
  15. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  16. Binder, Michael & Pesaran, Hashem, 2000. "Solution of finite-horizon multivariate linear rational expectations models and sparse linear systems," Journal of Economic Dynamics and Control, Elsevier, vol. 24(3), pages 325-346, March.
  17. Donald, Stephen G & Newey, Whitney K, 2001. "Choosing the Number of Instruments," Econometrica, Econometric Society, vol. 69(5), pages 1161-91, September.
  18. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
  19. repec:cup:etheor:v:11:y:1995:i:3:p:530-36 is not listed on IDEAS
  20. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  21. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  22. Guillaume GAULIER & Christophe HURLIN & Philippe JEAN-PIERRE, 1999. "Testing Convergence: A Panel Data Approach," Annales d'Economie et de Statistique, ENSAE, issue 55-56, pages 411-427.
  23. Wansbeek, Tom & Bekker, Paul, 1996. "On IV, GMM and ML in a dynamic panel data model," Economics Letters, Elsevier, vol. 51(2), pages 145-152, May.
  24. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  25. 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.
  26. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  27. Hsiao, Cheng, 1982. "Autoregressive modeling and causal ordering of economic variables," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 243-259, November.
  28. Peter C.B.Phillips & Donggyu Sul, 2002. "Dynamic Panel Estimation and Homogeneity Testing Under Cross Section Dependence," Cowles Foundation Discussion Papers 1362, Cowles Foundation for Research in Economics, Yale University.
  29. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  30. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, Octomber.
  31. M. Hashem Pesaran, 2003. "Estimation and Inference in Large Heterogenous Panels with Cross Section Dependence," CESifo Working Paper Series 869, CESifo Group Munich.
  32. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
  33. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  34. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  35. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  36. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October.
  37. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  38. Clive, W.J. & Lin, Jin-Lung, 1995. "Causality in the Long Run," Econometric Theory, Cambridge University Press, vol. 11(03), pages 530-536, June.
  39. Bhargava, Alok & Sargan, J D, 1983. "Estimating Dynamic Random Effects Models from Panel Data Covering Short Time Periods," Econometrica, Econometric Society, vol. 51(6), pages 1635-59, November.
  40. Ahn, Seung C. & Schmidt, Peter, 1997. "Efficient estimation of dynamic panel data models: Alternative assumptions and simplified estimation," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 309-321.
  41. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  42. Amemiya, Takeshi, 1973. "Generalized Least Squares with an Estimated Autocovariance Matrix," Econometrica, Econometric Society, vol. 41(4), pages 723-32, July.
  43. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0003. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb).

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.