Publication Type

Journal Article

Version

acceptedVersion

Publication Date

3-2020

Abstract

We consider the estimation and inference of fixed effects (FE) spatial dynamic panel data (SDPD) models under small T and unknown heteroskedasticity by extending the M-estimation strategy for homoskedastic FE-SDPD model of Yang (2018, Journal of Econometrics). Unbiased estimating equations are obtained by adjusting the conditional quasi-score functions given the initial observations, leading to M-estimators that are free from the initial conditions and robust against unknown cross-sectional heteroskedasticity. Consistency and asymptotic normality of the proposed M-estimator are established. The standard errors are obtained by representing the estimating equations as sums of martingale differences. Monte Carlo results show that the proposed M-estimators have good finite sample performance. The practical importance and relevance of allowing for heteroskedasticity in the model is illustrated using data on sovereign risk spillover.

Keywords

Adjusted quasi score, Dynamic panels, Fixed effects, Initial-condition, Martingale difference, Short panels, Spatial effects, Unknown heteroskedasticity

Discipline

Econometrics

Research Areas

Econometrics

Publication

Regional Science and Urban Economics

Volume

81

First Page

1

Last Page

20

ISSN

0166-0462

Identifier

10.1016/j.regsciurbeco.2020.103520

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.regsciurbeco.2020.103520

Included in

Econometrics Commons

Share

COinS