Dynamic Models and Reciprocity

Maurice J. G. Bun (), Felix Chan (), Mark Harris and Wei Ern (Ben) Yeo ()
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Maurice J. G. Bun: De Nederlandsche Bank and University of Amsterdam
Felix Chan: Curtin University
Wei Ern (Ben) Yeo: Curtin University

Chapter Chapter 6 in The Econometrics of Multi-dimensional Panels, 2024, pp 171-195 from Springer

Abstract: Abstract This chapter discusses the specification, estimation and testing of dynamic models with multi-dimensional data. The difficulties in estimating dynamic models in standard two-dimensional panel data are well known and these challenges are exacerbated by the more complicated endogeneity problems associated with using multi-dimensional data. Furthermore, the availability of multi-dimensional data allows proper modelling of reciprocity. This chapter analyzes a general model containing both reciprocity and short-run dynamics. It is straightforward to show that endogeneity is an inherent feature of the general model and least squares type estimators will be inconsistent. A set of valid orthogonal conditions is proposed, which is then used in Generalized Method of Moments (GMM) estimation.

Date: 2024
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DOI: 10.1007/978-3-031-49849-7_6

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