Efficient inference on fractionally integrated panel data models with fixed effects

Robinson, Peter M. and Velasco, Carlos (2015) Efficient inference on fractionally integrated panel data models with fixed effects. Journal of Econometrics, 185 (2). pp. 435-452. ISSN 0304-4076

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Abstract

A dynamic panel data model is considered that contains possibly stochastic individual components and a common stochastic time trend that allows for stationary and nonstationary long memory and general parametric short memory. We propose four different ways of coping with the individual effects so as to estimate the parameters. Like models with autoregressive dynamics, ours nests I(1)I(1) behaviour, but unlike the nonstandard asymptotics in the autoregressive case, estimates of the fractional parameter can be asymptotically normal. For three of the estimates, establishing this property is made difficult due to bias caused by the individual effects, or by the consequences of eliminating them, which appears in the central limit theorem except under stringent conditions on the growth of the cross-sectional size NN relative to the time series length TT, though in case of two estimates these can be relaxed by bias correction, where the biases depend only on the parameters describing autocorrelation. For the fourth estimate, there is no bias problem, and no restrictions on NN. Implications for hypothesis testing and interval estimation are discussed, with central limit theorems for feasibly bias-corrected estimates included. A Monte Carlo study of finite-sample performance is included.

Item Type:	Article
Official URL:	http://www.sciencedirect.com/science/journal/03044...
Additional Information:	© 2015 Elsevier B.V. © CC BY 4.0
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C12 - Hypothesis Testing C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C13 - Estimation C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data
Date Deposited:	28 Jan 2015 09:41
Last Modified:	12 Dec 2024 00:50
Projects:	SEJ2007-62908/ECON, ES/J007242/1, ECO2012-31748
Funders:	Cátedra de Excelencia at Universidad Carlos III de Madrid, Economic and Social Research Council, Spanish Ministerio de Economía y Competitividad
URI:	http://eprints.lse.ac.uk/id/eprint/60795

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