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System GMM estimation of panel data models with time varying slope coefficients

Author

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  • Sato, Yoshihiro

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Söderbom, Måns

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

We highlight the fact that the Sargan-Hansen test for GMM estimators applied to panel data is a joint test of valid orthogonality conditions and coefficient stability over time. A possible reason why the null hypothesis of valid orthogonality conditions is rejected is therefore that the slope coefficients vary over time. One solution is to estimate an empirical model where the coefficients are time specifi…c. We apply this solution to the system GMM estimatior of the Cobb-Douglas production functions for a selection of Swedish industries, and …find that relaxing the assumption that slope coefficients are constant over time results in considerably more satisfactory outcomes of the Sargan-Hansen test.

Suggested Citation

  • Sato, Yoshihiro & Söderbom, Måns, 2013. "System GMM estimation of panel data models with time varying slope coefficients," Working Papers in Economics 577, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0577
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    File URL: http://hdl.handle.net/2077/34650
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    References listed on IDEAS

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    1. 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.
    2. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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    More about this item

    Keywords

    panel data; system GMM estimation; time-varying coefficients; overidentifying restrictions;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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