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Consistent estimation of dynamic panel data models with time-varying individual effects

  • Céline NAUGES
  • Alban THOMAS

This paper proposes a new specification for dynamic panel data models, where unobserved heterogeneity is modeled by the sum of the usual additive individual effect, and a multiplicative, time varying individual effect. We show that usual GMM estimators based on first-difference or quasi-difference transformations are generally inconsistent with our model specification, and we propose a consistent GMM estimation procedure based on a double-difference transformation. Small sample properties of alternative GMM estimators are investigated through Monte Carlo experiments.

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File URL: http://www.jstor.org/stable/20076374
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Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2003)
Issue (Month): 70 ()
Pages: 53-75

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Handle: RePEc:adr:anecst:y:2003:i:70:p:03
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