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Inference and estimation in small sample dynamic panel data models

  • Sebastian Galiani
  • Martin Gonzalez-Rozada

We study the finite sample properties of the most important methods of estimation of dynamic panel data models in a special class of small samples: a two-sided small sample (i.e., a sample in which the time dimension is not that short but the cross-section dimension is not that large). This case is encountered increasingly in applied work. Our main results are the following: the estimator proposed by Kiviet (1995) outperforms all other estimators considered in the literature. However, standard statistical inference is not valid for any of them. Thus, to assess the true sample variability of the parameter estimates, bootstrap standard errors have to be computed. We find that standard bootstrapping techniques work well except when the autoregressive parameter is close to one. In this last case, the best available solution is to estimate standard errors by means of the Grid-t bootstrap estimator due to Hansen (1999).

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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-022002.pdf
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Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number treinta.

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Length: 46 pages
Date of creation: Aug 2002
Date of revision:
Handle: RePEc:udt:wpbsdt:treinta
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Web page: http://www.utdt.edu/listado_contenidos.php?id_item_menu=4994
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  1. David Card & Dean Hyslop, 1995. "Does Inflation 'Grease the Wheels of the Labor Market'?," Working Papers 735, Princeton University, Department of Economics, Industrial Relations Section..
  2. Hansen,B.E., 1998. "The grid bootstrap and the autoregressive model," Working papers 26, Wisconsin Madison - Social Systems.
  3. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  4. Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
  5. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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