A note on the application of EC2SLS and EC3SLS estimators in panel data models

Badi Baltagi and Long Liu

Statistics & Probability Letters, 2009, vol. 79, issue 20, 2189-2192

Abstract: Baltagi and Li [Baltagi, B.H., Li, Q., 1992. A note on the estimation of simultaneous equations with error components. Econometric Theory 8, 113-119] showed that for estimating a single equation in a simultaneous panel data model, EC2SLS has more instruments than G2SLS. Although these extra instruments are redundant in White's [White, H., 1986. Instrumental variables analogs of generalized least squares estimators. In: Mariano, R.S. (Ed.), Advances in Statistical Analysis and Statistical Computing, vol. 1. JAI Press, New York, pp. 173-277] terminology, they may yield different estimates and standard errors in empirical studies with finite N and T. We illustrate this using the crime data of Cornwell and Trumbull [Cornwell, C., Trumbull, W.N., 1994. Estimating the economic model of crime with panel data. Review of Economics and Statistics 76, 360-366]. We show that the standard errors of EC2SLS are smaller than those of G2SLS for this example. In general, we prove that the asymptotic variance of G2SLS differs from that of EC2SLS by a positive semi-definite matrix. Although this difference tends to zero as the sample size tends to infinity, in small samples, this difference may be different from zero and can lead to gains in small sample efficiency. This proof is extended to the system equations' 3SLS counterparts.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167-7152(09)00267-3
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A Note on the Application of EC2SLS and EC3SLS Estimators in Panel Data Models (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:stapro:v:79:y:2009:i:20:p:2189-2192

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

Access Statistics for this article

Statistics & Probability Letters is currently edited by Somnath Datta and Hira L. Koul

More articles in Statistics & Probability Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().