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Dynamic Models and Reciprocity

In: The Econometrics of Multi-dimensional Panels

Author

Listed:
  • Maurice J. G. Bun

    (De Nederlandsche Bank and University of Amsterdam)

  • Felix Chan

    (Curtin University)

  • Mark N. Harris

    (Curtin University)

  • Wei Ern (Ben) Yeo

    (Curtin University)

Abstract

This chapter discusses the specification, estimation and testing of dynamic models with multi-dimensional data. The difficulties in estimating dynamic models in standard two-dimensional panel data are well known and these challenges are exacerbated by the more complicated endogeneity problems associated with using multi-dimensional data. Furthermore, the availability of multi-dimensional data allows proper modelling of reciprocity. This chapter analyzes a general model containing both reciprocity and short-run dynamics. It is straightforward to show that endogeneity is an inherent feature of the general model and least squares type estimators will be inconsistent. A set of valid orthogonal conditions is proposed, which is then used in Generalized Method of Moments (GMM) estimation.

Suggested Citation

  • Maurice J. G. Bun & Felix Chan & Mark N. Harris & Wei Ern (Ben) Yeo, 2024. "Dynamic Models and Reciprocity," Advanced Studies in Theoretical and Applied Econometrics, in: Laszlo Matyas (ed.), The Econometrics of Multi-dimensional Panels, edition 2, chapter 0, pages 171-195, Springer.
    • Handle: RePEc:spr:adschp:978-3-031-49849-7_6
    DOI: 10.1007/978-3-031-49849-7_6
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