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GMM ESTIMATION AND INFERENCE IN DYNAMIC PANEL DATA MODELS WITH PERSISTENT DATA

Published online by Cambridge University Press:  01 October 2009

Hugo Kruiniger
Hugo Kruiniger*
Affiliation:
Queen Mary, University of London
*
*Address correspondence to Hugo Kruiniger, Department of Economics, Queen Mary, University of London, Mile End Road, London E1 4NS, United Kingdom; e-mail: h.kruiniger@qmul.ac.uk.
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Abstract

In this paper we consider generalized method of moments–based (GMM-based) estimation and inference for the panel AR(1) model when the data are persistent and the time dimension of the panel is fixed. We find that the nature of the weak instruments problem of the Arellano–Bond (Arellano and Bond, 1991, Review of Economic Studies 58, 277–297) estimator depends on the distributional properties of the initial observations. Subsequently, we derive local asymptotic approximations to the finite-sample distributions of the Arellano–Bond estimator and the System estimator, respectively, under a variety of distributional assumptions about the initial observations and discuss the implications of the results we obtain for doing inference. We also propose two Lagrange multiplier–type (LM-type) panel unit root tests.

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ARTICLES
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Econometric Theory , Volume 25 , Issue 5 , October 2009 , pp. 1348 - 1391
Copyright
Copyright © Cambridge University Press 2009

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