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The Effects of Dynamic Feedbacks on LS and MM Estimator Accuracy in Panel Data Models

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Author Info

  • Maurice J.G. Bun

    ()
    (Faculty of Economics and Econometrics, University of Amsterdam)

  • Jan F. Kiviet

    ()
    (Faculty of Economics and Econometrics, University of Amsterdam)

Abstract

This discussion paper led to a publication in the 'Journal of Econometrics' 132(2), 409-44. The finite sample behaviour is analysed of particular least squares (LS) andmethod of moments (MM) estimators in panel data models with individual effectsand both a lagged dependent variabIe regressor and another explanatory variabIewhich may be affected by lagged feedbacks from the dependent variabIe. Asymp-totic expansions indicate that the order of magnitude of bias of (generalized) MMestimators tends to increase with the number of moment conditions exploited. Forvarious estimation procedures we examine the analytical effects of feedbacks andother model characteristics such as prominence of individual effects. Simulation re-sults corroborate our theoretical findings and show that in small samples of modelswith dynamic feedbacks none of the techniques examined dominates. However, asimple bias corrected LS estimator which presupposes strict exogeneity is found tobe rather robliSt, showing often smaller root mean squared errors than GMM.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-101/4.

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Date of creation: 14 Oct 2002
Date of revision: 19 Feb 2004
Handle: RePEc:dgr:uvatin:20020101

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Web page: http://www.tinbergen.nl

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Keywords: asymptotic expansions; bias approximation; dynamic panel.;

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  1. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
  2. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  3. Arellano, M. & Honore, B., 2000. "Panel Data Models: Some Recent Developments," Papers 0016, Centro de Estudios Monetarios Y Financieros-.
  4. Bun, Maurice J. G. & Kiviet, Jan F., 2003. "On the diminishing returns of higher-order terms in asymptotic expansions of bias," Economics Letters, Elsevier, vol. 79(2), pages 145-152, May.
  5. 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.
  6. Koenker, Roger & Machado, Jose A. F., 1999. "GMM inference when the number of moment conditions is large," Journal of Econometrics, Elsevier, vol. 93(2), pages 327-344, December.
  7. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  8. Alvarez, J. & Arellano, M., 1998. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Papers 9808, Centro de Estudios Monetarios Y Financieros-.
  9. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291, September.
  10. 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.
  11. 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.
  12. Kajal Lahiri, 2005. "Analysis of Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1093-1095.
  13. van Giersbergen, Noud P A & Kiviet, Jan F, 1996. "Bootstrapping a Stable AD Model: Weak vs Strong Exogeneity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 631-56, November.
  14. 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.
  15. 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.
  16. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
  17. 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.
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