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The Difference, System and ‘Double-D’ GMM Panel Estimators in the Presence of Structural Breaks

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  • Rosen Azad Chowdhury
  • Bill Russell

Abstract

The effects of structural breaks in dynamic panels are more complicated than in time series models as the bias can be either negative or positive. This paper focuses on the effects of mean shifts in otherwise stationary processes within an instrumental variable panel estimation framework. We show the sources of the bias and a Monte Carlo analysis calibrated on United States bank lending data demonstrates the size of the bias for a range of auto-regressive parameters. We also propose additional moment conditions that can be used to reduce the biases caused by shifts in the mean of the data.

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File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_268.pdf
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Bibliographic Info

Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 268.

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Length: 25 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:dun:dpaper:268

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Keywords: Dynamic panel estimators; mean shifts/structural breaks; Monte Carlo Simulation;

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  1. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  2. 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.
  3. Josep Llu�s Carrion-i-Silvestre & Tom�s del Barrio-Castro & Enrique L�pez-Bazo, 2005. "Breaking the panels: An application to the GDP per capita," Econometrics Journal, Royal Economic Society, vol. 8(2), pages 159-175, 07.
  4. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  5. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
  6. Josep Lluis Carrion Silvestre & Tomas del Barrio Castro & Enrique Lopez Bazo, 2002. "Level shifts in a panel data based unit root test. An application to the rate of unemployment," Working Papers in Economics 79, Universitat de Barcelona. Espai de Recerca en Economia.
  7. Hayakawa, Kazuhiko, 2009. "On the effect of mean-nonstationarity in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 153(2), pages 133-135, December.
  8. Jushan Bai & Josep Llu�s Carrion-I-Silvestre, 2009. "Structural Changes, Common Stochastic Trends, and Unit Roots in Panel Data," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 471-501.
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. 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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