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

De Vos, Ignace LU and Everaert, Gerdie (2016) In 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.
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author
publishing date
type
Working Paper
publication status
published
subject
keywords
Factor augmented regression, multi-factor error structure, dynamic panel bias
in
Working Paper
issue
2016/920
language
English
LU publication?
no
id
868238b6-4f7f-40c6-80d2-7905ec6b756e
date added to LUP
2018-11-08 15:39:38
date last changed
2018-11-08 15:55:12
@misc{868238b6-4f7f-40c6-80d2-7905ec6b756e,
  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.},
  author       = {De Vos, Ignace and Everaert, Gerdie},
  keyword      = {Factor augmented regression,multi-factor error structure,dynamic panel bias},
  language     = {eng},
  note         = {Working Paper},
  number       = {2016/920},
  series       = {Working Paper},
  title        = {Bias-Corrected Common Correlated Effects Pooled Estimation In Homogeneous Dynamic Panels},
  year         = {2016},
}