First Difference or Forward Orthogonal Deviation- Which Transformation Should be Used in Dynamic Panel Data Models?: A Simulation Study

Kazuhiko Hayakawa

Economics Bulletin, 2009, vol. 29, issue 3, 2008-2017

Abstract: This paper compares the performances of the generalized method of moments (GMM) estimator of dynamic panel data model wherein unobserved individual effects are removed by the forward orthogonal deviation or the first difference. The simulation results show that the GMM estimator of the model transformed by the forward orthogonal deviation tends to work better than that transformed by the first difference.

Keywords: dynamic panel data model; first difference; forward orthogonal deviation; GMM (search for similar items in EconPapers)
JEL-codes: C3 (search for similar items in EconPapers)
Date: 2009-08-18
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Citations: View citations in EconPapers (84)

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