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Improving GMM efficiency in dynamic models for panel data with mean stationarity

Author

Listed:
  • Giorgio Calzolari

    (University of Florence)

  • Laura Magazzini

    (Department of Economics (University of Verona))

Abstract

Within the framework of dynamic panel data models with mean stationarity, one additional moment condition may remarkably increase the efficiency of the system GMM estimator. This additional condition is essentially a condition of “homoskesdasticity” of the individual effects; it is “implicitly satisfied” in all the Monte Carlo simulations on dynamic panel data models available in the literature (including the experiments with heteroskedasticity, which is always confined to the idiosyncratic errors), but not “explicitly” exploited. Monte Carlo experiments show remarkable efficiency improvements when the distribution of individual effects, and thus of yi0, are skewed, thus including the very important cases in economic applications that include variables like individual wages, sizes of the firms, number of employees, etc.

Suggested Citation

  • Giorgio Calzolari & Laura Magazzini, 2014. "Improving GMM efficiency in dynamic models for panel data with mean stationarity," Working Papers 12/2014, University of Verona, Department of Economics.
    • Handle: RePEc:ver:wpaper:12/2014
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    References listed on IDEAS

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    2. Giorgio Calzolari & Laura Magazzini, 2013. "A powerful test of mean stationarity in dynamic models for panel data: Monte Carlo evidence," Working Papers 14/2013, University of Verona, Department of Economics.
    3. Han, Chirok & Phillips, Peter C. B., 2010. "Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity," Econometric Theory, Cambridge University Press, vol. 26(1), pages 119-151, February.
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    More about this item

    Keywords

    panel data; dynamic model; GMM estimation; mean stationarity; skewed individual effects;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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