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Panel estimation of state-dependent adjustment when the target is unobserved

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  • Ulf Kalckreuth

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Abstract

Understanding adjustment processes has become central in economics. Empirical analysis is fraught with the problem that the target is usually unobserved. This paper develops, simulates and applies GMM methods for estimating dynamic adjustment models in a panel data context with partially unobserved targets and endogenous, time-varying persistence. In this setup, the standard first difference GMM procedure fails. I propose three estimation strategies. One is based on quasi-differencing, and it leads to two different, but related sets of moment conditions. The second is characterised by a statedependent filter, while the third is an adaptation of the GMM level estimator.
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Suggested Citation

  • Ulf Kalckreuth, 2011. "Panel estimation of state-dependent adjustment when the target is unobserved," Empirical Economics, Springer, vol. 40(1), pages 205-235, February.
    • Handle: RePEc:spr:empeco:v:40:y:2011:i:1:p:205-235
    DOI: 10.1007/s00181-010-0419-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic panel data methods; Economic adjustment; GMM; Quasi-differencing; Non-linear estimation; C23; C15; D21;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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