Bias Corrected Instrumental Variables Estimation for Dynamic Panel Models with Fixed E¤ects

Jinyong Hahn, Jerry Hausman and Guido Kuersteiner

No WP2005-024, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: This paper proposes a new instrumental variables estimator for a dynamic panel model with .xed e¤ects with good bias and mean squared error properties even when identi.cation of the model becomes weak near the unit circle. We adopt a weak instrument asymptotic approximation to study the behavior of various estimators near the unit circle. We show that an estimator based on long di¤erencing the model is much less biased than conventional implementations of the GMM estimator for the dynamic panel model. We also show that under the weak instrument approximation such conventional estimators are dominated in terms of mean squared error by an estimator with far less moment conditions. The long di¤erence estimator mimics the infeasible optimal procedure through its reliance on a small set of moment conditions.

Keywords: dynamic panel; bias correction; second order; unit root; weak instrument (search for similar items in EconPapers)
JEL-codes: C13 C23 C51 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2005-07
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:bos:wpaper:wp2005-024

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