Robust Dynamic Panel Data Models Usingε-Contamination

Badi Baltagi, Georges Bresson, Anoop Chaturvedi () and Guy Lacroix

A chapter in Essays in Honor of M. Hashem Pesaran: Panel Modeling, Micro Applications, and Econometric Methodology, 2022, vol. 43B, pp 307-336 from Emerald Group Publishing Limited

Abstract: This chapter extends the work of Baltagi, Bresson, Chaturvedi, and Lacroix (2018) to the popular dynamic panel data model. The authors investigate the robustness of Bayesian panel data models to possible misspecification of the prior distribution. The proposed robust Bayesian approach departs from the standard Bayesian framework in two ways. First, the authors consider theε-contamination class of prior distributions for the model parameters as well as for the individual effects. Second, both the base elicited priors and theε-contamination priors use Zellner’s (1986)g-priors for the variance–covariance matrices. The authors propose a general “toolbox” for a wide range of specifications which includes the dynamic panel model with random effects, with cross-correlated effectsà laChamberlain, for the Hausman–Taylor world and for dynamic panel data models with homogeneous/heterogeneous slopes and cross-sectional dependence. Using a Monte Carlo simulation study, the authors compare the finite sample properties of the proposed estimator to those of standard classical estimators. The chapter contributes to the dynamic panel data literature by proposing a general robust Bayesian framework which encompasses the conventional frequentist specifications and their associated estimation methods as special cases.

Keywords: Dynamic model; ε-contamination; g-priors; type-II maximum likelihood posterior density; panel data; robust Bayesian estimator; two-stage hierarchy; C11; C23; C26 (search for similar items in EconPapers)
Date: 2022
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Related works:
Working Paper: Robust Dynamic Panel Data Models Using ε-contamination (2020)
Working Paper: Robust Dynamic Panel Data Models Using e-Contamination (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-90532021000043b013

DOI: 10.1108/S0731-90532021000043B013

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