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Microeconometric Dynamic Panel Data Methods: Model Specification and Selection Issues

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  • Kiviet, Jan

Abstract

A motivated strategy is presented to find step by step an adequate model specification and a matching set of instrumental variables by applying the programming tools provided by the Stata package Xtabond2. The aim is to implement generalized method of moment techniques such that useful and reasonably accurate inferences are extracted from an observational panel data set on a single microeconometric structural presumably dynamic behavioral relationship. In the suggested specification search three comprehensive heavily interconnected goals are pursued, namely: (i) to include all the relevant appropriately transformed possibly lagged regressors, as well as any interactions between these if it is required to relax the otherwise very strict homogeneity restrictions on the dynamic impacts of the explanatories in standard linear panel data models; (ii) to correctly classify all regressors as either endogenous, predetermined or exogenous, as well as being either effect-stationary or effect-nonstationary, implying which internal variables could represent valid and relatively strong instruments; (iii) to enhance the accuracy of inference in finite samples by omitting irrelevant regressors and by profitably reducing the space spanned by the full set of available internal instruments. For the various tests which trigger the decisions to be made in the sequential selection process the relevant considerations are spelled out to interpret the magnitude of p-values. Also the complexities to establish and interpret the ultimately established dynamic impacts are explained. Finally the developed strategy is applied to a classic data set and is shown to yield new insights.

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  • Kiviet, Jan, 2019. "Microeconometric Dynamic Panel Data Methods: Model Specification and Selection Issues," MPRA Paper 93147, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93147
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    References listed on IDEAS

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    1. Bun, Maurice J.G. & Kiviet, Jan F., 2006. "The effects of dynamic feedbacks on LS and MM estimator accuracy in panel data models," Journal of Econometrics, Elsevier, vol. 132(2), pages 409-444, June.
    2. Kiviet Jan F., 2017. "Discriminating between (in)valid External Instruments and (in)valid Exclusion Restrictions," Journal of Econometric Methods, De Gruyter, vol. 6(1), pages 1-9, January.
    3. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    4. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    5. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    6. Andrew C. Harvey, 1990. "The Econometric Analysis of Time Series, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 026208189x, December.
    7. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
    8. Aris Spanos, 2018. "Mis†Specification Testing In Retrospect," Journal of Economic Surveys, Wiley Blackwell, vol. 32(2), pages 541-577, April.
    9. Ronald L. Wasserstein & Nicole A. Lazar, 2016. "The ASA's Statement on p -Values: Context, Process, and Purpose," The American Statistician, Taylor & Francis Journals, vol. 70(2), pages 129-133, May.
    10. Jan Kiviet & Milan Pleus & Rutger Poldermans, 2017. "Accuracy and Efficiency of Various GMM Inference Techniques in Dynamic Micro Panel Data Models," Econometrics, MDPI, vol. 5(1), pages 1-54, March.
    11. Andrews, Donald W. K. & Lu, Biao, 2001. "Consistent model and moment selection procedures for GMM estimation with application to dynamic panel data models," Journal of Econometrics, Elsevier, vol. 101(1), pages 123-164, March.
    12. Frank Windmeijer, 2018. "Testing Over- and Underidentification in Linear Models, with Applications to Dynamic Panel Data and Asset-Pricing Models," Bristol Economics Discussion Papers 18/696, School of Economics, University of Bristol, UK.
    13. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    14. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
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    More about this item

    Keywords

    classification of explanatories; dynamic impacts; interactions; feedback mechanisms; generalized method of moments; labor demand; model building strategy; short panels.;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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