System Estimation of Panel Data Models Under Long-Range Dependence

Yunus Emre Ergemen

Journal of Business & Economic Statistics, 2019, vol. 37, issue 1, 13-26

Abstract: A general dynamic panel data model is considered that incorporates individual and interactive fixed effects allowing for contemporaneous correlation in model innovations. The model accommodates general stationary or nonstationary long-range dependence through interactive fixed effects and innovations, removing the necessity to perform a priori unit-root or stationarity testing. Moreover, persistence in innovations and interactive fixed effects allows for cointegration; innovations can also have vector-autoregressive dynamics; deterministic trends can be featured. Estimations are performed using conditional-sum-of-squares criteria based on projected series by which latent characteristics are proxied. Resulting estimates are consistent and asymptotically normal at standard parametric rates. A simulation study provides reliability on the estimation method. The method is then applied to the long-run relationship between debt and GDP. Supplementary materials for this article are available online.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:37:y:2019:i:1:p:13-26

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DOI: 10.1080/07350015.2016.1255217

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