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GMM and IV Estimation of Dynamic Panel Models with Heterogeneous Trend

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In this paper, we consider the generalized method of moment (GMM) and simple instrumental variable (IV) type estimation of dynamic panel data models with both individualspeci?c e?ects and heterogeneous time trend. We consider the forward demeaning (FOD) proposed by Hayakawa et al (2017) and the double ?rst di?erence (FD) to remove both the individual-speci?c e?ects and heterogeneous trend. We establish the asymptotic properties of the GMM estimation of the lag coe?cient and ?nd that the GMM estimation using FOD is asymptotically biased of order square root of T/N, while the GMM using FD is asymptotically biased of order square root of T^3/N. We also establish the asymptotic unbiasedness of the simple IV estimation. Monte Carlo simulations con?rm our ?ndings in this paper.

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  • Qiankun Zhou & Niansheng Tang & Shiyun Cao & Yonghui Zhang, 2019. "GMM and IV Estimation of Dynamic Panel Models with Heterogeneous Trend," Departmental Working Papers 2019-01, Department of Economics, Louisiana State University.
    • Handle: RePEc:lsu:lsuwpp:2019-01
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