Consistent Estimation of Linear Panel Data Models with Measurement Error

53 Pages Posted: 27 Jan 2015

See all articles by Erik Meijer

Erik Meijer

University of Southern California; RAND Corporation

Laura Spierdijk

University of Twente - Department of Behavioural, Management and Social Sciences - Financial Engineering section

Tom Wansbeek

University of Groningen - Faculty of Economics and Business

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Date Written: January 26, 2015

Abstract

Measurement error causes a downward bias when estimating a panel data linear regression model. The panel data context offers various opportunities to derive moment conditions that result in consistent GMM estimators. We consider three sources of moment conditions: (i) restrictions on the intertemporal covariance matrix of the errors in the equations, (ii) heteroskedasticity and nonlinearity in the relation between the error-ridden covariate and another, error-free, covariate in the equation, and (iii) nonzero third moments of the covariates. In a simulation study we show that these approaches work well.

Keywords: measurement error, panel data, third moments, heteroskedasticity, GMM

JEL Classification: C230, C260

Suggested Citation

Meijer, Erik and Spierdijk, Laura and Wansbeek, Tom, Consistent Estimation of Linear Panel Data Models with Measurement Error (January 26, 2015). CESifo Working Paper Series No. 5164, Available at SSRN: https://ssrn.com/abstract=2555580 or http://dx.doi.org/10.2139/ssrn.2555580

Erik Meijer

University of Southern California ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Laura Spierdijk (Contact Author)

University of Twente - Department of Behavioural, Management and Social Sciences - Financial Engineering section ( email )

Hallenweg 17
Enschede, 7522NH
Netherlands

Tom Wansbeek

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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