Publication Type
Journal Article
Version
acceptedVersion
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
Citation
HAN, Chirok; Peter C. B. PHILLIPS; and SUL, Donggyu.
Lag length selection in panel autoregression. (2017). Econometric Reviews. 36, (1-3), 225-240.
Available at: https://ink.library.smu.edu.sg/soe_research/1893
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1080/07474938.2015.1114313