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Empirical Likelihood: Improved Inference within Dynamic Panel Data Models

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    Abstract

    This paper proposes and analyses an hybrid of Owen's (1988, 1990, 1991) Empirical Likelihood (EL) and bootstrap, EL-bootstrap, as an alternative to the General Method of Moments (GMM) within dynamic panel data models. We concentrate on the finite-sample size properties of their overidentification tests. Our results show that EL-bootstrap may be a good alternative to GMM estimation within this setting. The practical usefulness of our findings is illustrated via application on an AR(1) univariate panel data model with individual effects using the cash-flow series of 174 firms in the United States.

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    File URL: http://www.econ.ed.ac.uk/papers/panel_data_2007.pdf
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    Bibliographic Info

    Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 154.

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    Length: 34
    Date of creation: Jan 2007
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    Handle: RePEc:edn:esedps:154

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    1. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, vol. 77(2), pages 211-220, October.
    2. Hall, B. & Mairesse, J. & Branstetter, L. & Crepon, B., 1998. "Does Cash Flow cause Investment and R&D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Economics Papers 142, Economics Group, Nuffield College, University of Oxford.
    3. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    4. 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.
    5. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
    6. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
    7. Horowitz, Joel L. & Savin, N. E., 2000. "Empirically relevant critical values for hypothesis tests: A bootstrap approach," Journal of Econometrics, Elsevier, vol. 95(2), pages 375-389, April.
    8. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521522717.
    9. Steve Bond & Frank Windmeijer, 2002. "Finite sample inference for GMM estimators in linear panel data models," CeMMAP working papers CWP04/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    10. 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.
    11. Guido W. Imbens & Richard H. Spady & Phillip Johnson, 1998. "Information Theoretic Approaches to Inference in Moment Condition Models," Econometrica, Econometric Society, vol. 66(2), pages 333-358, March.
    12. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 262-80, July.
    13. Magdalinos, Michael A. & Symeonides, Spyridon D., 1996. "A reinterpretation of the tests of overidentifying restrictions," Journal of Econometrics, Elsevier, vol. 73(2), pages 325-353, August.
    14. Bond, Stephen & Bowsher, Clive & Windmeijer, Frank, 2001. "Criterion-based inference for GMM in autoregressive panel data models," Economics Letters, Elsevier, vol. 73(3), pages 379-388, December.
    15. 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.
    16. Stephen Bond & CĂ©line Nauges & Frank Windmeijer, 2002. "Unit Roots and Identification in Autoregressive Panel Data Models: A Comparison of Alternative Tests," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C5-4, International Conferences on Panel Data.
    17. Joel L. Horowitz, 1996. "Bootstrap Methods in Econometrics: Theory and Numerical Performance," Econometrics 9602009, EconWPA, revised 05 Mar 1996.
    18. 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.
    19. Hall, Peter & Horowitz, Joel L, 1996. "Bootstrap Critical Values for Tests Based on Generalized-Method-of-Moments Estimators," Econometrica, Econometric Society, vol. 64(4), pages 891-916, July.
    20. 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.
    21. 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.
    22. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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