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Level-Based Estimation of Dynamic Panel Models

Author

Listed:
  • Montes-Rojas Gabriel

    (Instituto Interdisciplinario de Economía Política, Universidad de Buenos Aires and CONICET, Buenos Aires, Argentina)

  • Sosa-Escudero Walter

    (Universidad de San Andrés-CONICET, Buenos Aires, Argentina)

  • Zincenko Federico

    (Department of Economics, University of Pittsburgh, Pittsburgh, PA, USA)

Abstract

This paper develops an alternative estimator for linear dynamic panel data models based on parameterizing the covariances between covariates and unobserved time-invariant effects. A GMM framework is used to derive an optimal estimator based on moment conditions in levels, with no efficiency loss compared to the classic alternatives like (Arellano, M., and S. Bond. 1991. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” Review of Economic Studies 58 (2): 277–297), (Ahn, S. C., and P. Schmidt. 1995. “Efficient Estimation of Models for Dynamic Panel Data.” Journal of Econometrics 68 (1): 5–27) and (Ahn, S. C., and P. Schmidt. 1997. “Efficient Estimation of Dynamic Panel Data Models: Alternative Assumptions and Simplified Estimation.” Journal of Econometrics 76: 309–321). Still, we show analytically and by Monte Carlo simulations that the new procedure leads to efficiency improvements for certain data generating processes. The framework also leads to a very simple test for unobserved effects.

Suggested Citation

  • Montes-Rojas Gabriel & Sosa-Escudero Walter & Zincenko Federico, 2020. "Level-Based Estimation of Dynamic Panel Models," Journal of Econometric Methods, De Gruyter, vol. 9(1), pages 1-23, January.
    • Handle: RePEc:bpj:jecome:v:9:y:2020:i:1:p:23:n:5
    DOI: 10.1515/jem-2018-0015
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    References listed on IDEAS

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    More about this item

    Keywords

    asymptotic efficiency; dynamic panel; GMM estimation; individual effects; short panel;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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