GMM Estimation for Dynamic Panels with Fixed Effects and Strong Instruments at Unity

Chirok Han and Peter Phillips

No 1599, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper develops new estimation and inference procedures for dynamic panel data models with fixed effects and incidental trends. A simple consistent GMM estimation method is proposed that avoids the weak moment condition problem that is known to affect conventional GMM estimation when the autoregressive coefficient (rho) is near unity. In both panel and time series cases, the estimator has standard Gaussian asymptotics for all values of rho in (-1, 1] irrespective of how the composite cross section and time series sample sizes pass to infinity. Simulations reveal that the estimator has little bias even in very small samples. The approach is applied to panel unit root testing.

Keywords: Asymptotic normality; Asymptotic power envelope; Moment conditions; Panel unit roots; Point optimal test; Unit root tests; Weak instruments (search for similar items in EconPapers)
JEL-codes: C22 C23 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2007-01
New Economics Papers: this item is included in nep-ecm and nep-ets
Note: CFP 1290
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Econometric Theory (2009), 26(1): 119-151

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Related works:
Journal Article: GMM ESTIMATION FOR DYNAMIC PANELS WITH FIXED EFFECTS AND STRONG INSTRUMENTS AT UNITY (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:1599

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