IDEAS home Printed from https://ideas.repec.org/p/zbw/rwirep/315488.html
   My bibliography  Save this paper

Fixed effects, lagged dependent variables, and bracketing: Cautionary remarks

Author

Listed:
  • Demetrescu, Matei
  • Frondel, Manuel
  • Tomberg, Lukas
  • Vance, Colin

Abstract

We investigate a bracketing property that purports to yield upper- and lower bounds on the treatment effects obtained from a fixed effects- and lagged dependent variable model. Referencing both analytical results and a Monte Carlo simulation, we explore the conditions under which the bracketing property holds, confirming this to be the case when the data generating process (DGP) is characterized by either unobserved heterogeneity or feedback effects from a lagged dependent variable (LDV). However, when the DGP is characterized by both features simultaneously, we find that bracketing of the treatment effect only holds under certain conditions - but not in general. Practitioners can nevertheless obtain the lower bound estimate by referencing a model that includes both fixed effects and a LDV. While the Nickell bias in the coefficient of the LDV is known to be of order 1/T, we show that the Nickell-type bias in the estimator of the treatment effect is of order 1/T squared.

Suggested Citation

  • Demetrescu, Matei & Frondel, Manuel & Tomberg, Lukas & Vance, Colin, 2025. "Fixed effects, lagged dependent variables, and bracketing: Cautionary remarks," Ruhr Economic Papers 1151, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:315488
    DOI: 10.4419/96973334
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/315488/1/1923082132.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.4419/96973334?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Maurice J. G. Bun & Frank Windmeijer, 2010. "The weak instrument problem of the system GMM estimator in dynamic panel data models," Econometrics Journal, Royal Economic Society, vol. 13(1), pages 95-126, February.
    2. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    3. Enrique Moral-Benito & Paul Allison & Richard Williams, 2019. "Dynamic panel data modelling using maximum likelihood: an alternative to Arellano-Bond," Applied Economics, Taylor & Francis Journals, vol. 51(20), pages 2221-2232, April.
    4. Jonathan Guryan, 2004. "Desegregation and Black Dropout Rates," American Economic Review, American Economic Association, vol. 94(4), pages 919-943, September.
    5. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    6. Lars Leszczensky & Tobias Wolbring, 2022. "How to Deal With Reverse Causality Using Panel Data? Recommendations for Researchers Based on a Simulation Study," Sociological Methods & Research, , vol. 51(2), pages 837-865, May.
    7. Sylvia Klosin, 2024. "Dynamic Biases of Static Panel Data Estimators," Papers 2410.16112, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rasolofoson, Ranaivo A. & Milner, Erin M. & Mattah, Brian J. & Brashares, Justin S. & Fernald, Lia H. & Fiorella, Kathryn J., 2025. "Fishery access benefits early childhood development through fish consumption and fishing income pathways," World Development, Elsevier, vol. 186(C).
    2. Jahen F. Rezki, 2022. "Political competition and economic performance: evidence from Indonesia," Economics of Governance, Springer, vol. 23(2), pages 83-114, June.
    3. Meyer, Sophie-Charlotte, 2016. "Maternal employment and childhood overweight in Germany," Economics & Human Biology, Elsevier, vol. 23(C), pages 84-102.
    4. Charlotte Fabri & Sam Vermeulen & Steven Van Passel & Sergei Schaub, 2024. "Crop diversification and the effect of weather shocks on Italian farmers' income and income risk," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(3), pages 955-980, September.
    5. Czarnitzki, Dirk & Doherr, Thorsten & Hussinger, Katrin & Schliessler, Paula & Toole, Andrew A., 2016. "Knowledge Creates Markets: The influence of entrepreneurial support and patent rights on academic entrepreneurship," European Economic Review, Elsevier, vol. 86(C), pages 131-146.
    6. Bakx, Pieter & Wouterse, Bram & van Doorslaer, Eddy & Wong, Albert, 2020. "Better off at home? Effects of nursing home eligibility on costs, hospitalizations and survival," Journal of Health Economics, Elsevier, vol. 73(C).
    7. Christoph Riedl & Eric Bogert, 2024. "Effects of AI Feedback on Learning, the Skill Gap, and Intellectual Diversity," Papers 2409.18660, arXiv.org.
    8. Manuela Jr., Wilfred S. & Friesen, Mark, 2025. "Determinants of car parking revenues: An econometric analysis of large European airports," Journal of Air Transport Management, Elsevier, vol. 122(C).
    9. Ellis, Jimmy R. & Gershenson, Seth, 2016. "LATE for the Meeting: Gender, Peer Advising, and College Success," IZA Discussion Papers 9956, Institute of Labor Economics (IZA).
    10. Fatica, Serena, 2009. "Taxation and the quality of institutions: asymmetric effects on FDI," MPRA Paper 24179, University Library of Munich, Germany, revised Jun 2010.
    11. Sedova, Barbora & Kalkuhl, Matthias, 2020. "Who are the climate migrants and where do they go? Evidence from rural India," World Development, Elsevier, vol. 129(C).
    12. Coustaury, Camille & Jeannot, Elias & Moreau, Adele & Nietge, Clotilde & Maharani, Asri & Richards, Lindsay & Präg, Patrick, 2023. "Subjective socioeconomic status and self-rated health in the English Longitudinal Study of Aging: A fixed-effects analysis☆☆We thank the anonymous reviewers of Social Science & Medicine for their help," Social Science & Medicine, Elsevier, vol. 336(C).
    13. Boris HirschBy & Daniel S. J. Lechmann & Claus Schnabel, 2017. "Coming to work while sick: an economic theory of presenteeism with an application to German data," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 1010-1031.
    14. Klaus Friesenbichler & Michael Peneder, 2016. "Innovation, competition and productivity," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(3), pages 535-580, July.
    15. Alfredo Paloyo & Arndt Reichert, 2017. "Biting Back at Malaria: Assessing Health-service Providers' Compliance with Treatment Guidelines," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 591-626, August.
    16. Kere, Eric Nazindigouba & Choumert, Johanna & Combes Motel, Pascale & Combes, Jean Louis & Santoni, Olivier & Schwartz, Sonia, 2017. "Addressing Contextual and Location Biases in the Assessment of Protected Areas Effectiveness on Deforestation in the Brazilian Amazônia," Ecological Economics, Elsevier, vol. 136(C), pages 148-158.
    17. Cockx, Bart & Ghirelli, Corinna, 2016. "Scars of recessions in a rigid labor market," Labour Economics, Elsevier, vol. 41(C), pages 162-176.
    18. Borisova, Ginka & Fotak, Veljko & Holland, Kateryna & Megginson, William L., 2015. "Government ownership and the cost of debt: Evidence from government investments in publicly traded firms," Journal of Financial Economics, Elsevier, vol. 118(1), pages 168-191.
    19. Dahlberg, Matz & Mani, Kevin & Öhman, Mattias & Wanhainen, Anders, 2016. "Health Information and Well-Being: Evidence from an Asymptomatic Disease," Working Paper Series 2016:2, Uppsala University, Department of Economics.
    20. Manuel Denzer, 2019. "Estimating Causal Effects in Binary Response Models with Binary Endogenous Explanatory Variables - A Comparison of Possible Estimators," Working Papers 1916, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.

    More about this item

    Keywords

    Monte Carlo simulation; treatment effect; bounds; Nickell bias;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:rwirep:315488. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/rwiesde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.