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The Asymptotic Properties of the System GMM Estimator in Dynamic Panel Data Models When Both N and T are Large

  • Kazuhiko Hayakawa

This paper complements Alvarez and Arellano (2003) by showing the asymptotic properties of the system GMM estimator for AR(1) panel data models when both N and T tend to infinity. We show that the system GMM estimator with the instruments which Blundell and Bond (1998) used will be inconsistent when both N and T are large. We also show that the system GMM estimator with all available instruments, including redundant ones, will be consistent if σ η 2/σ v2 = 1-α holds.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d05-129.

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Date of creation: Jan 2006
Date of revision:
Handle: RePEc:hst:hstdps:d05-129
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  1. Kazuhiko Hayakawa, 2005. "Small Sample Bias Propreties of the System GMM Estimator in Dynamic Panel Data Models," Hi-Stat Discussion Paper Series d05-82, Institute of Economic Research, Hitotsubashi University.
  2. Alonso-Borrego, Cesar & Arellano, Manuel, 1999. "Symmetrically Normalized Instrumental-Variable Estimation Using Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 36-49, January.
  3. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  4. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  6. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank.
  7. Bond, Stephen Roy & Hoeffler, Anke & Temple, Jonathan, 2001. "GMM Estimation of Empirical Growth Models," CEPR Discussion Papers 3048, C.E.P.R. Discussion Papers.
  8. Maurice J.G. Bun & Jan F. Kiviet, 2002. "The Effects of Dynamic Feedbacks on LS and MM Estimator Accuracy in Panel Data Models," Tinbergen Institute Discussion Papers 02-101/4, Tinbergen Institute, revised 19 Feb 2004.
  9. Kazuhiko Hayakawa, 2006. "Efficient GMM Estimation of Dynamic Panel Data Models Where Large Heterogeneity May Be Present," Hi-Stat Discussion Paper Series d05-130, Institute of Economic Research, Hitotsubashi University.
  10. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  11. Alvarez, J. & Arellano, M., 1998. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Papers 9808, Centro de Estudios Monetarios Y Financieros-.
  12. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
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