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Identification problem of GMM estimators for short panel data models with interactive fixed effects

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  • Hayakawa, Kazuhiko

Abstract

This paper studies the GMM estimation of short panel data models with interactive fixed effects. We demonstrate that the nonlinear moment conditions proposed by Ahn et al. (2001, 2013) do not always satisfy the global identification assumption, which is necessary for consistency of the GMM estimation. Some numerical examples are provided to confirm this claim. We also demonstrate that the same problem occurs for moment conditions proposed by Hayakawa (2012) and Robertson and Sarafidis (2015), since their moment conditions become identical to those of Ahn et al. (2001, 2013) in some cases. Finally, we conduct Monte Carlo simulations and show that the starting value used in the computation of non-linear GMM estimators has a significant effect on performance.

Suggested Citation

  • Hayakawa, Kazuhiko, 2016. "Identification problem of GMM estimators for short panel data models with interactive fixed effects," Economics Letters, Elsevier, vol. 139(C), pages 22-26.
    • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:22-26
    DOI: 10.1016/j.econlet.2015.12.012
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    References listed on IDEAS

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    1. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    2. Robertson, Donald & Sarafidis, Vasilis, 2015. "IV estimation of panels with factor residuals," Journal of Econometrics, Elsevier, vol. 185(2), pages 526-541.
    3. Rothenberg, Thomas J, 1971. "Identification in Parametric Models," Econometrica, Econometric Society, vol. 39(3), pages 577-591, May.
    4. Ahn, Seung C. & Lee, Young H. & Schmidt, Peter, 2013. "Panel data models with multiple time-varying individual effects," Journal of Econometrics, Elsevier, vol. 174(1), pages 1-14.
    5. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    6. Ahn, Seung Chan & Hoon Lee, Young & Schmidt, Peter, 2001. "GMM estimation of linear panel data models with time-varying individual effects," Journal of Econometrics, Elsevier, vol. 101(2), pages 219-255, April.
    7. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
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    Citations

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    Cited by:

    1. Juodis, Artūras & Sarafidis, Vasilis, 2022. "An incidental parameters free inference approach for panels with common shocks," Journal of Econometrics, Elsevier, vol. 229(1), pages 19-54.
    2. Hayakawa, Kazuhiko, 2019. "Alternative over-identifying restriction test in the GMM estimation of panel data models," Econometrics and Statistics, Elsevier, vol. 10(C), pages 71-95.
    3. Hayakawa, Kazuhiko, 2018. "Corrected standard errors for optimal minimum distance estimator," Economics Letters, Elsevier, vol. 167(C), pages 5-9.
    4. Ayden Higgins, 2021. "Fixed $T$ Estimation of Linear Panel Data Models with Interactive Fixed Effects," Papers 2110.05579, arXiv.org.

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    More about this item

    Keywords

    Panel data; Identification; GMM; Interactive fixed effects;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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