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Panel Data with Errors-in-Variables: A Note on Essential and Redundant Orthogonality Conditions in GMM-estimation

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Abstract

General Method of Moments (GMM) estimation of a linear one-equation model using panel data with errors-in-variables is considered. To eliminate fixed individual heterogeneity, the equation is differenced across one or more than one periods and estimated by means of instrumental variables. With non-autocorrelated measurement error, we show that only the one-period and a few two-period differences are essential, i.e. relevant for GMM-estimation. GMM estimation based on all orthogonality conditions on the basis of a generalized inverse formulation is shown to be equivalent to estimation using only the essential orthogonality conditions

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  • Erik Biørn & Tor Jakob Klette, 1997. "Panel Data with Errors-in-Variables: A Note on Essential and Redundant Orthogonality Conditions in GMM-estimation," Discussion Papers 190, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:190
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    Keywords

    Panel Data; Errors-in-Variables; Instrumental Variables; GMM Estimation; Generalized inverse;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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