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The effects of dynamic feedbacks on LS and MM estimator accuracy in panel data models

Listed author(s):
  • Bun, Maurice J.G.
  • Kiviet, Jan F.

This discussion paper led to a publication in the 'Journal of Econometrics' 132(2), 409-44. The finite sample behaviour is analysed of particular least squares (LS) andmethod of moments (MM) estimators in panel data models with individual effectsand both a lagged dependent variabIe regressor and another explanatory variabIewhich may be affected by lagged feedbacks from the dependent variabIe. Asymp-totic expansions indicate that the order of magnitude of bias of (generalized) MMestimators tends to increase with the number of moment conditions exploited. Forvarious estimation procedures we examine the analytical effects of feedbacks andother model characteristics such as prominence of individual effects. Simulation re-sults corroborate our theoretical findings and show that in small samples of modelswith dynamic feedbacks none of the techniques examined dominates. However, asimple bias corrected LS estimator which presupposes strict exogeneity is found tobe rather robliSt, showing often smaller root mean squared errors than GMM.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 132 (2006)
Issue (Month): 2 (June)
Pages: 409-444

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Handle: RePEc:eee:econom:v:132:y:2006:i:2:p:409-444
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
  2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  3. Koenker, Roger & Machado, Jose A. F., 1999. "GMM inference when the number of moment conditions is large," Journal of Econometrics, Elsevier, vol. 93(2), pages 327-344, December.
  4. Javier Alvarez & Manuel Arellano, 2003. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Econometrica, Econometric Society, vol. 71(4), pages 1121-1159, 07.
  5. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
  6. Maurice J.G. Bun & Jan F. Kiviet, 2002. "On the Diminishing Returns of Higher-order Terms in Asymptotic Expansions of Bias," Tinbergen Institute Discussion Papers 02-099/4, Tinbergen Institute, revised 24 Oct 2002.
  7. R Blundell & Steven Bond, "undated". "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  8. van Giersbergen, Noud P A & Kiviet, Jan F, 1996. "Bootstrapping a Stable AD Model: Weak vs Strong Exogeneity," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 631-656, November.
  9. 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.
  10. 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.
  11. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
  12. Arellano, M. & Honore, B., 2000. "Panel Data Models: Some Recent Developments," Papers 0016, Centro de Estudios Monetarios Y Financieros-.
  13. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  14. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
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