Small sample properties of panel time-series estimators with I(1) errors
AbstractMonte Carlo simulations are used to explore the small-sample properties of a mean group and two pooled panel estimators of a regression coefficient when the regressor is I(1). We compare and contrast the effect of I(0) and I(1) errors and homogeneous and heterogeneous coefficients in a design based on two typical PPP panels. The results confirm that the asymptotic theory is relevant to practical applications. With I(0) errors and homogeneous coefficients, the estimators are unbiased, dispersion depends on the signal-noise ratio and falls at rate T(rootN) as expected. With I(1) errors and no cointegration, dispersion falls at rate rootN. When heterogeneity is introduced with I(0) errors, the dispersion of the pooled estimators falls at rate root N, but that of the mean group continues to fall at rate T(rootN). Finally, the pooled estimators are likely to lead to distorted inference both in the case of I(1) errors and the case of I(0) errors with heterogeneous coefficients case. The mean group estimators are, however, are generally correctly sized.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 191.
Date of creation: 01 Apr 2001
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Web page: http://www.econometricsociety.org/conference/SCE2001/SCE2001.html
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Monte Carlo; response surface; spurious regression; PPP;
Other versions of this item:
- Ron Smith & Ana-Maria Fuertes & Jerry Coakley, 2001. "Small Sample Properties of Panel Time-series Estimators with I(1) Errors," Working Papers wp01-08, Warwick Business School, Finance Group.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
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