Estimation and Testing in a Fixed Effects Panel Data Model with Serially Correlated Error Component Disturbances

Badi Baltagi and Long Liu
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Long Liu: Florida Atlantic University, https://business.fau.edu/faculty-research/faculty-profiles/profile/liul.php

No 267, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper revisits the fixed effects panel data model with AR(1) remainder disturbances and provides a bias corrected estimator for the serial correlation coefficient based on first differencing the panel regression to get rid of the fixed effects. This bias corrected estimator builds upon the estimator proposed by Han and Phillips (2010). Asymptotic properties as well as Monte Carlo results are provided that show the better performance of this new proposed bias corrected estimator. This is extended to the unbalanced panel data case and also illustrated using the empirical application in Donohue and Levitt (2001).

Keywords: Panel Data; Serial Correlation; Generalized Least Squares; Fixed Effects; First Difference; Nonstationarity (search for similar items in EconPapers)
JEL-codes: C23 C24 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2025-05
New Economics Papers: this item is included in nep-dcm and nep-ecm
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