Dynamic Panel Data Modelling Using Maximum Likelihood: An Alternative to Arellano-Bond

29 Pages Posted: 25 Jan 2017

See all articles by Enrique Moral-Benito

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Paul D. Allison

University of Pennsylvania - Department of Sociology

Richard A Williams

University of Notre Dame - Department of Sociology

Date Written: January 25, 2017

Abstract

The Arellano and Bond (1991) estimator is widely-used among applied researchers when estimating dynamic panels with fixed effects and predetermined regressors. This estimator might behave poorly in finite samples when the cross-section dimension of the data is small (i.e. small N), especially if the variables under analysis are persistent over time. This paper discusses a maximum likelihood estimator that is asymptotically equivalent to Arellano and Bond (1991) but presents better finite sample behaviour. Moreover, the estimator is easy to implement in Stata using the xtdpdml command as described in the companion paper Williams et al. (2016), which also discusses further advantages of the proposed estimator for practitioners.

Keywords: dynamic panel data, maximum likelihood estimation

JEL Classification: C23

Suggested Citation

Moral-Benito, Enrique and Allison, Paul D. and Williams, Richard A, Dynamic Panel Data Modelling Using Maximum Likelihood: An Alternative to Arellano-Bond (January 25, 2017). Banco de Espana Working Paper No. 1703. Available at SSRN: https://ssrn.com/abstract=2905606 or http://dx.doi.org/10.2139/ssrn.2905606

Enrique Moral-Benito (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Paul D. Allison

University of Pennsylvania - Department of Sociology ( email )

3718 Locust Walk
Philadelphia, PA 19104-6297
United States
610-715-5702 (Phone)
419-818-1220 (Fax)

HOME PAGE: http://www.pauldallison.com

Richard A Williams

University of Notre Dame - Department of Sociology ( email )

Notre Dame, IN 46556
United States

HOME PAGE: http://www3.nd.edu/~rwilliam/

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