Publication Type

Journal Article

Version

acceptedVersion

Publication Date

3-2007

Abstract

Explicit asymptotic bias formulae are given for dynamic panel regression estimators as the cross section sample size N --> ∞. The results extend earlier work by Nickell [1981. Biases in dynamic models with fixed effects. Econometrica 49, 1417-1426] and later authors in several directions that are relevant for practical work, including models with unit roots, deterministic trends, predetermined and exogenous regressors, and errors that may be cross sectionally dependent. The asymptotic bias is found to be so large when incidental linear trends are fitted and the time series sample size is small that it changes the sign of the autoregressive coefficient. Another finding of interest is that, when there is cross section error dependence, the probability limit of the dynamic panel regression estimator is a random variable rather than a constant, which helps to explain the substantial variability observed in dynamic panel estimates when there is cross section dependence even in situations where N is very large. Some proposals for bias correction are suggested and finite sample performance is analyzed in simulations.

Keywords

Autoregression, Bias, Bias correction, Cross section dependence, Dynamic factors, Dynamic panel estimation, Incidental trends, Panel unit root

Discipline

Econometrics

Research Areas

Econometrics

Publication

Journal of Econometrics

Volume

137

Issue

1

First Page

162

Last Page

188

ISSN

0304-4076

Identifier

10.1016/j.jeconom.2006.03.009

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jeconom.2006.03.009

Download

Included in

Econometrics Commons

Share

COinS