A Monte Carlo Evaluation of the Efficiency of the PCSE Estimator
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, FGLS estimator (Parks) sometimes performs poorly in finite samples. In a widely cited paper, Beck and Katz (1995) claim that their estimator (PCSE) is able to produce more accurate coefficient standard errors 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.
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| Length: | 11 pages |
| Date of creation: | 03 Nov 2006 |
| Date of revision: | |
| Handle: | RePEc:cbt:econwp:06/14 |
| Contact details of provider: | Postal: Private Bag 4800, Christchurch, New Zealand Phone: 64 3 369 3123 (Administrator) Fax: 64 3 364 2635 Web page: http://www.econ.canterbury.ac.nz More information through EDIRC
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