Bias-corrected estimation of linear dynamic panel data models
Sebastian Kripfganz and
Jörg Breitung ()
London Stata Conference 2022 from Stata Users Group
In the presence of unobserved group-specific heterogeneity, the conventional fixed-effects and random-effects estimators for linear panel data models are biased when the model contains a lagged dependent variable and the number of time periods is small. We present a computationally simple bias-corrected estimator with attractive finite-sample properties, which is implemented in our new xtdpdbc Stata package. The estimator relies neither on instrumental variables nor on specific assumptions about the initial observations. Because it is a method-of-moments estimator, standard errors are readily available from asymptotic theory. Higher-order lags of the dependent variable can be accommodated as well. A useful test for the correct model specification is the Arellano–Bond test for residual 3 autocorrelation. The random-effects versus fixed-effects assumption can be tested using a Hansen overidentification test or a generalized Hausman test. The user can also specify a hybrid model, in which only a subset of the exogenous regressors satisfies a random-effects assumption.
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Persistent link: https://EconPapers.repec.org/RePEc:boc:lsug22:05
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