Publication Type

Journal Article

Publication Date

3-2017

Abstract

Model selection by BIC is well known to be inconsistent in the presence of incidental parameters. This article shows that, somewhat surprisingly, even without fixed effects in dynamic panels BIC is inconsistent and overestimates the true lag length with considerable probability. The reason for the inconsistency is explained, and the probability of overestimation is found to be 50% asymptotically. Three alternative consistent lag selection methods are considered. Two of these modify BIC, and the third involves sequential testing. Simulations evaluate the performance of these alternative lag selection methods in finite samples.

Keywords

BIC, dynamic panel, lag selection, sequential testing, X-differencing, C33

Discipline

Econometrics

Research Areas

Econometrics

Publication

Econometric Reviews

Volume

36

Issue

1-3

First Page

225

Last Page

240

ISSN

0747-4938

Identifier

10.1080/07474938.2015.1114313

Publisher

Taylor & Francis: STM, Behavioural Science and Public Health Titles

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1080/07474938.2015.1114313

Included in

Econometrics Commons

Share

COinS