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A Simple Efficient Instrumental Variable Estimator in Panel AR(p) Models

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  • Kazuhiko Hayakawa

Abstract

In this paper, we show that for panel AR(p) models with iid errors, an instrumental variable (IV) estimator with instruments in the backward orthogonal deviation has the same asymptotic distribution as the infeasible optimal IV estimator when both N and T, the dimensions of the cross section and the time series, are large. If we assume that the errors are normally distributed, the asymptotic variance of the proposed IV estimator is shown to attain the lower bound when both N and T are large. A simulation study is conducted to assess the estimator.

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File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2007/pdf/D07-213.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d07-213.

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Date of creation: May 2007
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Handle: RePEc:hst:hstdps:d07-213

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Keywords: panel AR(p) models; the optimal instruments; the backward orthogonal deviation;

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Cited by:
  1. Chirok Han & Peter C.B. Phillips & Donggyu Sul, 2010. "X-Differencing and Dynamic Panel Model Estimation," Cowles Foundation Discussion Papers 1747, Cowles Foundation for Research in Economics, Yale University.
  2. Kazuhiko Hayakawa, 2009. "First Difference or Forward Orthogonal Deviation- Which Transformation Should be Used in Dynamic Panel Data Models?: A Simulation Study," Economics Bulletin, AccessEcon, vol. 29(3), pages 2008-2017.
  3. Naoto Kunitomo & Kentaro Akashi, 2010. "An Aysmptotically Optimal Modification of the Panel LIML Estimation for Individual Heteroscedasticity," CIRJE F-Series CIRJE-F-780, CIRJE, Faculty of Economics, University of Tokyo.
  4. Huang, Yongfu & Quibria, M. G., 2013. "The global partnership for inclusive growth," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. 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.
  6. Kentaro Akashi & Naoto Kunitomo, 2010. "The Limited Information Maximum Likelihood Approach to Dynamic Panel Structural Equations," CIRJE F-Series CIRJE-F-708, CIRJE, Faculty of Economics, University of Tokyo.
  7. Kazuhiko Hayakawa, 2008. "On the Effect of Nonstationary Initial Conditions in Dynamic Panel Data Models," Hi-Stat Discussion Paper Series d07-245, Institute of Economic Research, Hitotsubashi University.

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