GMM estimation for dynamic panels with fixed effects and strong instrument at unity

Publication Type

Journal Article

Publication Date

2-2010

Abstract

This paper develops new estimation and inference procedures for dynamic panel data models with fixed effects and incidental trends. A simple consistent GMM estimation method is proposed that avoids the weak moment condition problem that is known to affect conventional GMM estimation when the autoregressiye coefficient (rho) is near unity. In both panel and time series cases, the estimator has standard Gaussian asymptotics for all values of rho is an element of (-1, 1] irrespective of how the composite cross-section and time series sample sizes pass to infinity. Simulations reveal that the estimator has little bias even in very small samples. The approach is applied to panel unit root testing.

Discipline

Econometrics

Research Areas

Econometrics

Publication

Econometric Theory

Volume

26

Issue

1

First Page

119

Last Page

151

ISSN

0266-4666

Identifier

10.1017/S026646660909063X

Publisher

Cambridge University Press

Additional URL

https://doi.org./10.1017/S026646660909063X

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