ESTIMATION AND INFERENCE IN SHORT PANEL VECTOR AUTOREGRESSIONS WITH UNIT ROOTS AND COINTEGRATION

Michael Binder, Cheng Hsiao and Mohammad Pesaran

Econometric Theory, 2005, vol. 21, issue 4, 795-837

Abstract: This paper considers estimation and inference in panel vector autoregressions where (i) the individual effects are either random or fixed, (ii) the time-series properties of the model variables are unknown a priori and may feature unit roots and cointegrating relations, and (iii) the time dimension of the panel is short and its cross-sectional dimension is large. Generalized method of moments (GMM) and quasi maximum likelihood (QML) estimators are obtained and compared in terms of their asymptotic and finite-sample properties. It is shown that the asymptotic variances of the GMM estimators that are based on levels in addition to first differences of the model variables depend on the variance of the individual effects, whereas by construction the fixed effects QML estimator is not subject to this problem. Monte Carlo evidence is provided showing that the fixed effects QML estimator tends to outperform the various GMM estimators in finite sample under both normal and nonnormal errors. The paper also shows how the fixed effects QML estimator can be successfully used for unit root and cointegration tests in short panels.We are grateful to Karim Abadir, Stephen Bond, Jinyong Hahn, Marc Nerlove, Ingmar Prucha, and, especially, Manuel Arellano, Peter Schmidt, Peter Phillips (the editor), and four anonymous referees for helpful and constructive comments. We have also benefited from useful suggestions by participants at various seminars and conferences.

Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (177)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration (2001)
Working Paper: Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration (2000)
Working Paper: Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration (2000)
Working Paper: Estimation and Inference In Short Panel Vector Autoregressions with Unit Roots And Cointegration (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:etheor:v:21:y:2005:i:04:p:795-837_05

Access Statistics for this article

More articles in Econometric Theory from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().