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A Monte Carlo evaluation of the efficiency of the PCSE estimator

Author

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  • Xiujian Chen
  • Shu Lin
  • W. Robert Reed

Abstract

Panel data characterized by groupwise heteroscedasticity, cross-sectional correlation, and AR(1) serial correlation pose problems for econometric analyses. It is well known that the asymptotically efficient, Feasible Generalized Least Squares (FGLS) estimator (Parks) sometimes performs poorly in finite samples. In a widely cited paper, Beck and Katz (1995) claim that their estimator panel-corrected SE (PCSE) is able to produce more accurate coefficient SE without any loss in efficiency in 'practical research situations'. This study disputes that claim. We find that the PCSE estimator is usually less efficient than Parks - and substantially so - except when the number of time periods is close to the number of cross sections.

Suggested Citation

  • Xiujian Chen & Shu Lin & W. Robert Reed, 2010. "A Monte Carlo evaluation of the efficiency of the PCSE estimator," Applied Economics Letters, Taylor & Francis Journals, vol. 17(1), pages 7-10, January.
  • Handle: RePEc:taf:apeclt:v:17:y:2010:i:1:p:7-10
    DOI: 10.1080/13504850701719702
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    References listed on IDEAS

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    1. Michael A. Lapré & Nikos Tsikriktsis, 2006. "Organizational Learning Curves for Customer Dissatisfaction: Heterogeneity Across Airlines," Management Science, INFORMS, vol. 52(3), pages 352-366, March.
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    Cited by:

    1. repec:eee:jpolmo:v:39:y:2017:i:2:p:333-348 is not listed on IDEAS
    2. Roberto Fernández Llera & María A. García Valiñas, 2010. "Efficiency and elusion: both sides of public enterprises in Spain," Working Papers 2010/5, Institut d'Economia de Barcelona (IEB).
    3. Roberto Fernández Llera & María A. García Valiñas, 2013. "The Role of Regional Public Enterprises in Spain: Room for a Shadow Government?," Hacienda Pública Española, IEF, vol. 205(2), pages 9-31, June.
    4. Mantobaye Moundigbaye & Clarisse Messemer & Richard W. Parks & W. Robert Reed, 2016. "Bootstrap Methods for Inference in the Parks Model," Working Papers in Economics 16/22, University of Canterbury, Department of Economics and Finance.
    5. José M. Alonso & Judith Clifton & Daniel Díaz-Fuentes, 2015. "Did New Public Management Matter? An empirical analysis of the outsourcing and decentralization effects on public sector size," Public Management Review, Taylor & Francis Journals, vol. 17(5), pages 643-660, May.
    6. Thierry Pénard & Sylvain Dejean & Raphaël Suire, 2011. "Olson’s Paradox Revisited: An Empirical Analysis of Incentives to Contribute in P2P File-sharing Communities," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201105, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

    More about this item

    JEL classification:

    • 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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