Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration

Michael Binder (), C. Hsaio and M Hashem Pesaran ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper considers estimation and inference in panel vector autoregressions (PVARs) with fixed effects when the time dimension of the panel is finite, and the cross-sectional dimension is large. A Maximum Likelihood (ML) estimator based on a transformed likelihood function is proposed and shown to be consistent and asymptotically normally distributed irrespective of the unit root and cointegrating properties of the underlying PVAR model. The transformed likelihood framework is also used to derive unit root and cointegration tests in panels with short time dimension; these tests have the attractive feature that they are based on standard chi-squared and normal distributed statistics. Examining Generalised Method of Moments (GMM) estimation as an alternative to our proposed ML estimator, it is shown that conventional GMM estimators based on standard orthogonality conditions break down if the underlying time series contain unit roots.

Keywords: Panel vector autoregressions; Fixed effects; Unit roots; Cointegration (search for similar items in EconPapers)
JEL-codes: C12 C13 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: Written
Note: EM
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http://www.econ.cam.ac.uk/faculty/pesaran/PvarRevOct03.pdf (application/pdf)

Related works:
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 (2001)
Working Paper: Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration (2000)
Journal Article: ESTIMATION AND INFERENCE IN SHORT PANEL VECTOR AUTOREGRESSIONS WITH UNIT ROOTS AND COINTEGRATION (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:cam:camdae:0003

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