Bias-Corrected Common Correlated Effects Pooled Estimation In Homogeneous Dynamic Panels

Research output: Working paper

Abstract

This paper extends the Common Correlated Effects Pooled (CCEP) estimator to homogeneous dynamic panels. In this setting CCEP suffers from a large bias when the time series dimension (T) is fixed. We develop a bias-corrected estimator that is valid for a multi-factor error structure provided that a sufficient number of cross-sectional averages, and lags thereof, are added to the model. We show that the resulting CCEPbc estimator is consistent as the number of cross-sections (N) tends to infinity, both for T fixed or growing large. Monte Carlo experiments show that our correction offers strong improvements in terms of bias and variance.

Details

Authors
External organisations
  • Ghent University
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Probability Theory and Statistics
  • Economics

Keywords

  • Factor augmented regression, multi-factor error structure, dynamic panel bias
Original languageEnglish
Place of PublicationGhent
StatePublished - 2016
Publication categoryResearch
Externally publishedYes

Publication series

NameWorking Paper
PublisherGhent University, Faculty of Economics and Business Administration
No.2016/920