THE ROBUSTNESS OF ESTIMATORS FOR DYNAMIC PANEL DATA MODELS TO MISSPECIFICATION

Mark Harris, Weiping Kostenko, Laszlo Matyas () and Isfaaq Timol
Additional contact information
Weiping Kostenko: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Australia
Isfaaq Timol: Department of Econometrics and Business Statistics, Monash University, Clayton, Melbourne, Victoria 3800, Australia

The Singapore Economic Review (SER), 2009, vol. 54, issue 03, 399-426

Abstract: Transition from economic theory to a testable form of model invariably involves the use of certain "simplifying assumptions." If, however, these are not valid, misspecified models result. This article considers estimation of the dynamic linear panel data model, which often forms the basis of testable economic hypotheses. The estimators of such a model are frequently similarly based on certain assumptions which appear to be often untenable in practice. Here, the performance of these estimators is analyzed in scenarios where the theoretically required conditions are not met. Specifically, we consider three such instances of serial correlation of the idiosyncratic disturbance terms; correlation of the idiosyncratic disturbance terms and explanatory variables; and, finally, cross-sectional dependence (as a robustness check to these findings, we also consider correlations between observed and unobserved heterogeneity terms). The major findings are that the limited tests readily available tend to have poor power properties and that estimators' performance varies greatly across scenarios. In such a wide array of experiments, it is difficult to pick-out just one "winner." However, a robust estimator across all experiments and parameter settings was a variant of the Wansbeek–Bekker estimator. This is a significant finding, as this estimator is infrequently used in practice. When the experiments are extended to include correlations between observed and unobserved heterogeneity terms, one might also consider, for across-the-board performance, the Blundell and Bond estimator.

Keywords: Dynamic panel data; misspecification; IV/GMM estimation; C13; C15; C23 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590809003409
Access to full text is restricted to subscribers

Related works:
Working Paper: The Robustness of Estimators for Dynamic Panel Data Models to Misspecification (1996)
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:wsi:serxxx:v:54:y:2009:i:03:n:s0217590809003409

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590809003409

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().