First difference or forward demeaning: Implications for the method of moments estimators

Cheng Hsiao and Qiankun Zhou

Econometric Reviews, 2017, vol. 36, issue 6-9, 883-897

Abstract: In this paper, we consider the method of moment estimation for dynamic panel models based on either forward demeaning (FOD) or first difference (FD) transformations to eliminate the individual-specific effects, using either all lags or one lag as instruments. We show that the Arellano–Bond-type generalized method of moment (GMM) based on FD is asymptotically biased of order \begin{equation}\sqrt{c}\end{equation}c using all lags or one lag as instruments where \begin{equation}c={{T} \over {N}}\lte{}\infty \end{equation}c=TN<∞ as N,T→∞. For GMM based on FOD, it is asymptotically biased of order \begin{equation}\sqrt{c}\end{equation}c when using all lags, but it is asymptotically unbiased when using only fixed number of lags as instruments. We also discuss these findings in light of the simple IV estimator. Monte Carlo simulations confirm our findings in this paper.

Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://hdl.handle.net/10.1080/07474938.2017.1307594 (text/html)
Access to full text is restricted to subscribers.

Related works:
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:taf:emetrv:v:36:y:2017:i:6-9:p:883-897

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/LECR20

DOI: 10.1080/07474938.2017.1307594

Access Statistics for this article

Econometric Reviews is currently edited by Dr. Essie Maasoumi

More articles in Econometric Reviews from Taylor & Francis Journals
Bibliographic data for series maintained by ().