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Robust Dynamic Panel Data Models Using e-Contamination

Author

Listed:
  • Baltagi, Badi H.

    () (Syracuse University)

  • Bresson, Georges

    () (University of Paris 2)

  • Chaturvedi, Anoop

    () (University of Allahabad)

  • Lacroix, Guy

    () (Université Laval)

Abstract

This paper extends the work of Baltagi et al. (2018) to the popular dynamic panel data model. We investigate the robustness of Bayesian panel data models to possible misspecication of the prior distribution. The proposed robust Bayesian approach departs from the standard Bayesian framework in two ways. First, we consider the ε-contamination class of prior distributions for the model parameters as well as for the individual effects. Second, both the base elicited priors and the ε-contamination priors use Zellner (1986)'s g-priors for the variance-covariance matrices. We propose a general "toolbox" for a wide range of specifications which includes the dynamic panel model with random effects, with cross-correlated effects à la Chamberlain, for the Hausman-Taylor world and for dynamic panel data models with homogeneous/heterogeneous slopes and cross-sectional dependence. Using a Monte Carlo simulation study, we compare the nite sample properties of our proposed estimator to those of standard classical estimators. The paper contributes to the dynamic panel data literature by proposing a general robust Bayesian framework which encompasses the conventional frequentist specications and their associated estimation methods as special cases.

Suggested Citation

  • Baltagi, Badi H. & Bresson, Georges & Chaturvedi, Anoop & Lacroix, Guy, 2020. "Robust Dynamic Panel Data Models Using e-Contamination," IZA Discussion Papers 13214, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13214
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    References listed on IDEAS

    as
    1. Baltagi, Badi H. & Bresson, Georges & Chaturvedi, Anoop & Lacroix, Guy, 2018. "Robust linear static panel data models using ε-contamination," Journal of Econometrics, Elsevier, vol. 202(1), pages 108-123.
    2. Shrivastava, Arvind & Chaturvedi, Anoop & Bhatti, M. Ishaq, 2019. "Robust Bayesian analysis of a multivariate dynamic model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 528(C).
    3. William R. Fairweather, 1972. "A Method of Obtaining an Exact Confidence Interval for the Common Mean of Several Normal Populations," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 21(3), pages 229-233, November.
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    More about this item

    Keywords

    robust Bayesian estimator; g-priors; type-II maximum likelihood posterior density; e-contamination; panel data; dynamic model; two-stage hierarchy;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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