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Dynamic Panel Data Models with Cross Section Dependence and Heteroscedasticity

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Author Info
Kazuhiko Hayakawa

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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 ƒÏ, 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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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d07-212.

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Date of creation: May 2007
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Handle: RePEc:hst:hstdps:d07-212

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References listed on IDEAS
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  1. Joaquim Ramalho, 2003. "Feasible bias-corrected OLS, within-groups, and first-differences estimators for typical micro and macro AR(1) panel data models," Economics Working Papers 10_2003, University of Évora, Department of Economics (Portugal). [Downloadable!]
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  2. Bun, Maurice J.G. & Carree, Martin A., 2005. "Bias-Corrected Estimation in Dynamic Panel Data Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 200-210, April. [Downloadable!] (restricted)
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  3. Chirok Han & Peter C.B. Phillips, 2007. "GMM Estimation for Dynamic Panels with Fixed Effects and Strong Instruments at Unity," Cowles Foundation Discussion Papers 1599, Cowles Foundation, Yale University. [Downloadable!]
  4. Keisuke Hirano, 2002. "Semiparametric Bayesian Inference in Autoregressive Panel Data Models," Econometrica, Econometric Society, vol. 70(2), pages 781-799, March. [Downloadable!] (restricted)
  5. Peter C. B. Phillips & Chirok Han, 2006. "Gaussian Inference in AR(1) Time Series with or without a Unit Root," Cowles Foundation Discussion Papers 1546, Cowles Foundation, Yale University. [Downloadable!]
  6. Phillips, Peter C.B. & Sul, Donggyu, 2007. "Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence," Journal of Econometrics, Elsevier, vol. 127(1), pages 162-188, March. [Downloadable!] (restricted)
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  7. Chowdhury, Gopa, 1987. "A Note on Correcting Biases in Dynamic Panel Models," Applied Economics, Taylor and Francis Journals, vol. 19(1), pages 31-37, January.
  8. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November. [Downloadable!] (restricted)
  9. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06. [Downloadable!] (restricted)
  10. Kazuhiko Hayakawa, 2006. "A Note on Bias in First-Differenced AR(1) Models," Economics Bulletin, Economics Bulletin, vol. 3(27), pages 1-10. [Downloadable!]
  11. Tsung-Wu Ho, 2006. "Income Thresholds And Growth Convergence: A Panel Data Approach," Manchester School, University of Manchester, vol. 74(2), pages 170-189, 03. [Downloadable!] (restricted)
  12. Bun, Maurice J.G. & Carree, Martin A., 2006. "Bias-corrected estimation in dynamic panel data models with heteroscedasticity," Economics Letters, Elsevier, vol. 92(2), pages 220-227, August. [Downloadable!] (restricted)
  13. Etsuro Shioji, 2004. "Initial Values and Income Convergence: Do "The Poor Stay Poor"?," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 444-446, 05. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kazuhiko Hayakawa, 2006. "A Note on Bias in First-Differenced AR(1) Models," Economics Bulletin, Economics Bulletin, vol. 3(27), pages 1-10. [Downloadable!]
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