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Moment Conditions and Neglected Endogeneity in Panel Data Models

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  • Giorgio Calzolari

    ()
    (University of Florence)

  • Laura Magazzini

    ()
    (Department of Economics (University of Verona))

Abstract

This paper develops a new moment condition for estimation of linear panel data models. When added to the set of instruments devised by Anderson, Hsiao (1981, 1982) for the dynamic model, the proposed approach can outperform the GMM methods customarily employed for estimation. The proposal builds on the properties of the iterated GLS, that, contrary to conventional wisdom, can lead to a consistent estimator in particular cases where endogeneity of the explanatory variables is neglected. The targets achieved are a reduction in the number of moment conditions and a better performance over the most widely adopted techniques.

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Bibliographic Info

Paper provided by University of Verona, Department of Economics in its series Working Papers with number 02/2011.

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Date of creation: Feb 2011
Date of revision:
Handle: RePEc:ver:wpaper:02/2011

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Keywords: panel data; dynamic model; GMM estimation; endogeneity;

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References

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  1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  2. 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 for Research in Economics, Yale University.
  3. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  4. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
  5. Bhargava, Alok & Sargan, J D, 1983. "Estimating Dynamic Random Effects Models from Panel Data Covering Short Time Periods," Econometrica, Econometric Society, vol. 51(6), pages 1635-59, November.
  6. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521522717, April.
  7. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  8. Calzolari, Giorgio & Sampoli, Letizia, 1993. "A Curious Result on Exact FIML and Instrumental Variables," Econometric Theory, Cambridge University Press, vol. 9(02), pages 296-309, April.
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Cited by:
  1. Giorgio Calzolari & Laura Magazzini, 2013. "A powerful test of mean stationarity in dynamic models for panel data: Monte Carlo evidence," Working Papers 14/2013, University of Verona, Department of Economics.
  2. Laura Magazzini & Giorgio Calzolari, 2012. "Identification of linear panel data models when instruments are not available," Working Papers 06/2012, University of Verona, Department of Economics.

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