Bootstrap Methods for Inference in the Parks Model

Mantobaye Moundigbaye, Clarisse Messemer, Richard W. Parks and W. Reed ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper shows how to bootstrap hypothesis tests in the context of the Parks (1967) estimator. It then demonstrates that the bootstrap outperforms Parks’s top competitor. The Parks estimator has been a workhorse for the analysis of panel data and seemingly unrelated regression equation systems because it allows the incorporation of cross-sectional correlation together with heteroskedasticity and serial correlation. Unfortunately, the associated, asymptotic standard error estimates are biased downward, often severely. To address this problem, Beck and Katz (1995) developed an approach that uses the Prais-Winsten estimator together with “panel corrected standard errors” (PCSE). While PCSE produces standard error estimates that are less biased than Parks, it forces the user to sacrifice efficiency for accuracy in hypothesis testing. The PCSE approach has been, and continues to be, widely used. This paper develops an alternative: a nonparametric bootstrapping procedure to be used in conjunction with the Parks estimator. We demonstrate its effectiveness using an innovative experimental approach that creates artificial panel datasets modelled after actual panel datasets. Our approach provides a Pareto-improving option by allowing researchers to retain the efficiency of the Parks estimator while producing more accurate hypothesis test results than the PCSE.

Keywords: Parks model; PCSE; SUR; panel data; cross-sectional correlation; bootstrap; Monte Carlo; simulation (search for similar items in EconPapers)
JEL-codes: C13 C15 C23 C33 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2018-10-01
New Economics Papers: this item is included in nep-ore
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https://repec.canterbury.ac.nz/cbt/econwp/1813.pdf (application/pdf)

Related works:
Journal Article: Bootstrap methods for inference in the Parks model (2020)
Working Paper: Bootstrap methods for inference in the Parks model (2019)
Working Paper: Bootstrap Methods for Inference in the Parks Model (2017)
Working Paper: Bootstrap Methods for Inference in the Parks Model (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:18/13

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