A Note on the Application of EC2SLS and EC3SLS Estimators in Panel Data Models
AbstractBaltagi and Li (1992) showed that for estimating a single equation in a simultaneous panel data model, EC2SLS has more instruments than G2SLS. Although these extra instruments are redundant in White (1986) terminology, they may yield different estimates and standard errors in empirical studies with finite N and T. We illustrte this using the crime data of Cornwell and Trumbull (1994). We show that the standard errors of EC2SLS are smaller than those of G2SLS for this example. In general, we prove that the asymptotic variance of G2SLS differs from that of EC2SLS by a positive semi-definite matrix. Although this difference tends to zero as the sample size tends to infinity, in small samples, this difference may be different from zero and can lead to gains in small sample efficiency. This proof is extended to the system equations 3SLS counterparts.
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Bibliographic InfoPaper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 116.
Length: 9 pages
Date of creation: Jul 2009
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Instrument variable; panel data;
Other versions of this item:
- Baltagi, Badi H. & Liu, Long, 2009. "A note on the application of EC2SLS and EC3SLS estimators in panel data models," Statistics & Probability Letters, Elsevier, vol. 79(20), pages 2189-2192, October.
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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