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Orthogonal to backward mean transformation for dynamic panel data models

Gerdie Everaert (UGent)
(2013) ECONOMETRICS JOURNAL. 16(2). p.179-221
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Abstract
The within-groups estimator is inconsistent in dynamic panels with fixed T as the individual sample mean of the lagged dependent variable used in the within transformation is contemporaneously correlated with the idiosyncratic error term. This paper suggests transforming the lagged dependent variable into orthogonal deviations from its individual backward mean, which is contemporaneously uncorrelated with the idiosyncratic error term. As this transformation eliminates the individual effects as but not for T fixed, this alternative estimator is consistent for but inconsistent for and T fixed. The inconsistency for fixed T is shown to be negligibly small, though. Moreover, a Monte Carlo simulation shows that overall, it has superior small sample properties compared to other dynamic panel data estimators.
Keywords
Dynamic panel, FINITE-SAMPLE PROPERTIES, Individual effects, Monte Carlo simulation, ERROR-COMPONENTS, BIAS, INFERENCE, Backward mean, GMM ESTIMATORS, EFFICIENT ESTIMATION

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Please use this url to cite or link to this publication:

MLA
Everaert, Gerdie. “Orthogonal to Backward Mean Transformation for Dynamic Panel Data Models.” ECONOMETRICS JOURNAL 16.2 (2013): 179–221. Print.
APA
Everaert, Gerdie. (2013). Orthogonal to backward mean transformation for dynamic panel data models. ECONOMETRICS JOURNAL, 16(2), 179–221.
Chicago author-date
Everaert, Gerdie. 2013. “Orthogonal to Backward Mean Transformation for Dynamic Panel Data Models.” Econometrics Journal 16 (2): 179–221.
Chicago author-date (all authors)
Everaert, Gerdie. 2013. “Orthogonal to Backward Mean Transformation for Dynamic Panel Data Models.” Econometrics Journal 16 (2): 179–221.
Vancouver
1.
Everaert G. Orthogonal to backward mean transformation for dynamic panel data models. ECONOMETRICS JOURNAL. 2013;16(2):179–221.
IEEE
[1]
G. Everaert, “Orthogonal to backward mean transformation for dynamic panel data models,” ECONOMETRICS JOURNAL, vol. 16, no. 2, pp. 179–221, 2013.
@article{4378219,
  abstract     = {The within-groups estimator is inconsistent in dynamic panels with fixed T as the individual sample mean of the lagged dependent variable used in the within transformation is contemporaneously correlated with the idiosyncratic error term. This paper suggests transforming the lagged dependent variable into orthogonal deviations from its individual backward mean, which is contemporaneously uncorrelated with the idiosyncratic error term. As this transformation eliminates the individual effects as but not for T fixed, this alternative estimator is consistent for but inconsistent for and T fixed. The inconsistency for fixed T is shown to be negligibly small, though. Moreover, a Monte Carlo simulation shows that overall, it has superior small sample properties compared to other dynamic panel data estimators.},
  author       = {Everaert, Gerdie},
  issn         = {1368-4221},
  journal      = {ECONOMETRICS JOURNAL},
  keywords     = {Dynamic panel,FINITE-SAMPLE PROPERTIES,Individual effects,Monte Carlo simulation,ERROR-COMPONENTS,BIAS,INFERENCE,Backward mean,GMM ESTIMATORS,EFFICIENT ESTIMATION},
  language     = {eng},
  number       = {2},
  pages        = {179--221},
  title        = {Orthogonal to backward mean transformation for dynamic panel data models},
  url          = {http://dx.doi.org/10.1111/ectj.12001},
  volume       = {16},
  year         = {2013},
}

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