The Effects of Dynamic Feedbacks on Ls and Mm Estimator Accuracy in Panel Data Models

Tinbergen Institute Discussion Paper No. 02-101/4

35 Pages Posted: 22 Nov 2002

See all articles by Maurice J. G. Bun

Maurice J. G. Bun

University of Amsterdam (UVA) - Department of Quantitative Economics; Tinbergen Institute

Jan F. Kiviet

University of Amsterdam - Department of Quantitative Economics; Tinbergen Institute; University of Amsterdam, Dept. of Quantitative Economics

Date Written: October 2002

Abstract

The finite sample behaviour is analysed of particular least squares (LS) and method of moments (MM) estimators in panel data models with individual effects and both a lagged dependent variable regressor and another explanatory variable which may be affected by lagged feedbacks from the dependent variable. Asymptotic expansions indicate that the order of magnitude of bias of (generalized) MM estimators tends to increase with the number of moment conditions exploited. For various estimation procedures we examine the analytical effects of feedbacks and other model characteristics such as prominence of individual effects. Simulation results corroborate our theoretical findings and show that in small samples of models with dynamic feedbacks none of the techniques examined dominates. However, a simple bias corrected LS estimator which presupposes strict exogeneity is found to be rather robust, showing often smaller root mean squared errors than GMM.

Keywords: asymptotic expansions, bias approximation, dynamic panel data model, feedback mechanisms, Monte Carlo simulation

JEL Classification: C13, C23

Suggested Citation

Bun, Maurice J. G. and Kiviet, Jan F., The Effects of Dynamic Feedbacks on Ls and Mm Estimator Accuracy in Panel Data Models (October 2002). Tinbergen Institute Discussion Paper No. 02-101/4, Available at SSRN: https://ssrn.com/abstract=345780 or http://dx.doi.org/10.2139/ssrn.345780

Maurice J. G. Bun (Contact Author)

University of Amsterdam (UVA) - Department of Quantitative Economics ( email )

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Tinbergen Institute ( email )

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Jan F. Kiviet

University of Amsterdam - Department of Quantitative Economics ( email )

Valckenierstraat 65-67
Amsterdam, 1018 XE
Netherlands
+31(20)5254224 (Phone)
+31(20)5254349 (Fax)

Tinbergen Institute ( email )

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University of Amsterdam, Dept. of Quantitative Economics ( email )

Valckenierstraat 65-67
Amsterdam, 1018 XE
Netherlands

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