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Dynamic panel data modelling using maximum likelihood: an alternative to Arellano-Bond

Author

Listed:
  • Enrique Moral-Benito

    (Banco de España)

  • Paul Allison

    (University of pennsylvania)

  • Richard Williams

    (University of Notre Dame)

Abstract

The Arellano and Bond (1991) estimator is widely-used among applied researchers when estimating dynamic panels with fixed effects and predetermined regressors. This estimator might behave poorly in finite samples when the cross-section dimension of the data is small (i.e. small N), especially if the variables under analysis are persistent over time. This paper discusses a maximum likelihood estimator that is asymptotically equivalent to Arellano and Bond (1991) but presents better finite sample behaviour. Moreover, the estimator is easy to implement in Stata using the xtdpdml command as described in the companion paperWilliams et al. (2016), which also discusses further advantages of the proposed estimator for practitioners.

Suggested Citation

  • Enrique Moral-Benito & Paul Allison & Richard Williams, 2017. "Dynamic panel data modelling using maximum likelihood: an alternative to Arellano-Bond," Working Papers 1703, Banco de España.
    • Handle: RePEc:bde:wpaper:1703
    as

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    References listed on IDEAS

    as
    1. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 1127-1170.
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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