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Dynamic Panel Data Models with Cross Section Dependence and Heteroscedasticity

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  • Kazuhiko Hayakawa

Abstract

In this paper, we show that the bias-corrected first-difference (BCFD) estimator suggested by Chowdhury (1987) can be applied to the case where the error terms are cross-sectionally dependent and heteroscedastic. By deriving the finite sample bias of the BCFD estimator, we find that the BCFD estimator has small bias when T, the dimension of the time series, is not very large and ρ, the autoregressive parameter, is close to one. Simulation results show that the BCFD estimator performs better than existing estimators, especially when T is not very large.

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  • Kazuhiko Hayakawa, 2007. "Dynamic Panel Data Models with Cross Section Dependence and Heteroscedasticity," Hi-Stat Discussion Paper Series d07-212, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:hstdps:d07-212
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    File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2007/pdf/D07-212.pdf
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    1. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
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    1. repec:ebl:ecbull:v:3:y:2006:i:27:p:1-10 is not listed on IDEAS
    2. Kazuhiko Hayakawa, 2006. "A Note on Bias in First-Differenced AR(1) Models," Economics Bulletin, AccessEcon, vol. 3(27), pages 1-10.

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