Consistent Estimation of Linear Panel Data Models with Measurement Error
53 Pages Posted: 27 Jan 2015
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Consistent Estimation of Linear Panel Data Models with Measurement Error
Consistent Estimation of Linear Panel Data Models with Measurement Error
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: Suggested Citation