A Monte Carlo Evaluation of the Efficiency of the PCSE Estimator

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A Monte Carlo Evaluation of the Efficiency of the PCSE Estimator

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Xiujian Chen
Shu Lin
W. Robert Reed () (University of Canterbury)

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Abstract

Panel data characterized by groupwise heteroscedasticity, cross-sectional correlation, and AR(1) serial correlation pose problems for econometric analyses. It is well known that the asymptotically efficient, FGLS estimator (Parks) sometimes performs poorly in finite samples. In a widely cited paper, Beck and Katz (1995) claim that their estimator (PCSE) is able to produce more accurate coefficient standard errors without any loss in efficiency in ¡°practical research situations.¡± This study disputes that claim. We find that the PCSE estimator is usually less efficient than Parks -- and substantially so -- except when the number of time periods is close to the number of cross-sections.

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Paper provided by University of Canterbury, Department of Economics in its series Working Papers in Economics with number 06/14.

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Length: 11 pages
Date of creation: 03 Nov 2006
Date of revision:
Handle: RePEc:cbt:econwp:06/14

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-01-14 (All new papers)
NEP-ECM-2007-01-14 (Econometrics)
NEP-ETS-2007-01-14 (Econometric Time Series)

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.:

Joseph DeJuan & Maria J. Luengo-Prado, 2005. "Consumption and Aggregate Constraints: International Evidence," Macroeconomics 0501018, EconWPA. [Downloadable!]
Other versions:
- Joseph P. Dejuan & Maria Jose Luengo-Prado, 2006. "Consumption and Aggregate Constraints: International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(1), pages 81-99, 02. [Downloadable!] (restricted)
Yermack, David, 2006. "Flights of fancy: Corporate jets, CEO perquisites, and inferior shareholder returns," Journal of Financial Economics, Elsevier, vol. 80(1), pages 211-242, April. [Downloadable!] (restricted)

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