Publication Type

Working Paper

Version

publishedVersion

Publication Date

12-2015

Abstract

It is well known that quasi maximum likelihood (QML) estimation of dynamic panel data (DPD) models with short panels depends on the assumptions on the initial values, and a wrong treatment of them will result in inconsistency and serious bias. The same issues apply to spatial DPD (SDPD) models with short panels. In this paper, a unified Mestimation method is proposed for estimating the fixed-effects SDPD models containing three major types of spatial effects, namely spatial lag, spatial error and space-time lag. The method is free from the specification of the distribution of the initial observations and robust against nonnormality of the errors. Consistency and asymptotic normality of the proposed M-estimator are established. A martingale difference representation of the underlying estimating functions is developed, which leads to an initial condition free estimate of the variance of the M-estimators. Monte Carlo results show that the proposed methods have excellent finite sample performance.

Keywords

Adjusted quasi score, Dynamic panels, Fixed effects, Initial-condition free estimation, Martingale difference, Spatial effects, Short panels

Discipline

Econometrics

Research Areas

Econometrics

Volume

14-2015

First Page

1

Last Page

53

Publisher

SMU Economics and Statistics Working Paper Series, No. 14-2015

City or Country

Singapore

Embargo Period

2-22-2016

Copyright Owner and License

Authors

Comments

Published in Journal of Econometrics, 2018, 205 (2), 423-447. https://doi.org/10.1016/j.jeconom.2017.08.019

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