Robust Dynamic Panel Data Models Using E-Contamination

55 Pages Posted: 14 May 2020

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University - Maxwell School of Citizenship and Public Affairs; IZA Institute of Labor Economics; Syracuse University - Center for Policy Research

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II

Anoop Chaturvedi

University of Allahabad

Guy Lacroix

Université Laval - Département d'Économique; IZA Institute of Labor Economics

Abstract

This paper extends the work of Baltagi et al. (2018) to the popular dynamic panel data model. We investigate the robustness of Bayesian panel data models to possible misspecication of the prior distribution. The proposed robust Bayesian approach departs from the standard Bayesian framework in two ways. First, we consider the ε-contamination class of prior distributions for the model parameters as well as for the individual effects. Second, both the base elicited priors and the ε-contamination priors use Zellner (1986)'s g-priors for the variance-covariance matrices. We propose a general "toolbox" for a wide range of specifications which includes the dynamic panel model with random effects, with cross-correlated effects à la Chamberlain, for the Hausman-Taylor world and for dynamic panel data models with homogeneous/heterogeneous slopes and cross-sectional dependence. Using a Monte Carlo simulation study, we compare the nite sample properties of our proposed estimator to those of standard classical estimators. The paper contributes to the dynamic panel data literature by proposing a general robust Bayesian framework which encompasses the conventional frequentist specications and their associated estimation methods as special cases.

Keywords: robust Bayesian estimator, g-priors, type-II maximum likelihood posterior density, e-contamination, panel data, dynamic model, two-stage hierarchy

JEL Classification: C11, C23, C26

Suggested Citation

Baltagi, Badi H. and Bresson, Georges and Chaturvedi, Anoop and Lacroix, Guy, Robust Dynamic Panel Data Models Using E-Contamination. IZA Discussion Paper No. 13214. Available at SSRN: https://ssrn.com/abstract=3596680

Badi H. Baltagi (Contact Author)

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

IZA Institute of Labor Economics

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Germany

Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States
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HOME PAGE: http://www.maxwell.syr.edu/cpr_about.aspx?id=6442451316

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

Anoop Chaturvedi

University of Allahabad ( email )

Department of Economics
University of Allahabad
Allahabad, PA 211002
India

Guy Lacroix

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-2024 (Phone)
418-656-7798 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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