The Effects of Dynamic Feedbacks on LS and MM Estimator Accuracy in Panel Data Models: Some Additional Results

Abstract

In this paper, we show that the order of magnitude of the finite sample bias of the GMMld^{(2)} estimator of Bun and Kiviet (2006) can be reduce from O(T/N) to O(1/N) if the optimal weighting matrix is used. To demonstrate this result, we consider a model transformed by the upper triangular Cholesky factorization of the inverse of the variance matrix of error component u_i. Some variants of the system GMM estimator that are associated with the Cholesky-transformed model are also discussed.