Testing initial conditions in dynamic panel data models
Laura Magazzini () and
Econometric Reviews, 2020, vol. 39, issue 2, 115-134
We propose a new framework for testing the “mean stationarity” assumption in dynamic panel data models, required for the consistency of the system GMM estimator. In our set up the assumption is obtained as a parametric restriction in an extended set of moment conditions, allowing the use of a LM test to check its validity. Our framework provides a ranking in terms of power of the analyzed test statistics, in which our approach exhibits better power than the difference-in-Sargan/Hansen test that compares system GMM and difference GMM, that is, on its turn, more powerful than the Sargan/Hansen test based on the system GMM moment conditions.
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Journal Article: Testing initial conditions in dynamic panel data models (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:emetrv:v:39:y:2020:i:2:p:115-134
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