Estimating Error Component Models With General MA(q) Disturbances

Badi Baltagi and Qi Li

Econometric Theory, 1994, vol. 10, issue 2, 396-408

Abstract: This paper provides a simple estimation method for an error component regression model with general MA(q) remainder disturbances. The estimation method utilizes the transformation derived by Baltagi and Li [3] for an error component model with autoregressive remainder disturbances, and a standard orthogonalizing algorithm for the general MA(q) model. This estimation method is computationally simple utilizing only least-squares regressions. This is important for panel data regressions where brute force GLS is in many cases not feasible.This estimation method performs well relative to true GLS in Monte-Carlo experiments.

Date: 1994
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