Dynamic Panel Estimation and Homogeneity Testing Under Cross Section Dependence

Peter Phillips and Donggyu Sul ()

No 1362, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper deals with cross section dependence, homogeneity restrictions and small sample bias issues in dynamic panel regressions. To address the bias problem we develop a panel approach to median unbiased estimation that takes account of cross section dependence. The new estimators given here considerably reduce the effects of bias and gain precision from estimating cross section error correlation. The paper also develops an asymptotic theory for tests of coefficient homogeneity under cross section dependence, and proposes a modified Hausman test to test for the presence of homogeneous unit roots. An orthogonalization procedure is developed to remove cross section dependence and permit the use of conventional and meta unit root tests with panel data. Some simulations investigating the finite sample performance of the estimation and test procedures are reported.

Keywords: Autoregression; Bias; Cross section dependence; Dynamic factors; Dynamic panel estimation; GLS estimation; Homogeneity tests; Median unbiased estimation; Modified Hausman tests; Median unbiased SUR estimation; Orthogonalization procedure; Panel unit root test (search for similar items in EconPapers)
JEL-codes: C32 C33 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2002-05
Note: CFP 1136
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Published in Econometrics Journal (June 2003), 6(1): 217-259

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Working Paper: Dynamic Panel Estimation and Homogenity Testing Under Cross Section Dependence (2002)
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