A SIMPLE EFFICIENT INSTRUMENTAL VARIABLE ESTIMATOR FOR PANEL AR(p) MODELS WHEN BOTH N AND T ARE LARGE
Econometric Theory, 2009, vol. 25, issue 3, 873-890
In this paper, we show that for panel AR(p) models, an instrumental variable (IV) estimator with instruments deviated from past means has the same asymptotic distribution as the infeasible optimal IV estimator when both N and T, the dimensions of the cross section and time series, are large. If we assume that the errors are normally distributed, the asymptotic variance of the proposed IV estimator is shown to attain the lower bound when both N and T are large. A simulation study is conducted to assess the estimator.
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