Template-Type: ReDIF-Paper 1.0

Author-Name: Jinyong Hahn

Author-X-Name-First: Jinyong 
Author-X-Name-Last: Hahn
Author-Email: 
Author-Workplace-Name: UCLA

Author-Name: Jerry Hausman

Author-X-Name-First: Jerry 
Author-X-Name-Last: Hausman
Author-Email: 
Author-Workplace-Name: 

Author-Name: Guido Kuersteiner

Author-X-Name-First: Guido 
Author-X-Name-Last: Kuersteiner
Author-Email: gkuerste@bu.edu
Author-Workplace-Name: Department of Economics, Boston University

Title: Bias Corrected Instrumental Variables Estimation
for Dynamic Panel Models with Fixed E¤ects


Abstract: This paper proposes a new instrumental variables estimator for a dynamic panel model with .xed
e¤ects with good bias and mean squared error properties even when identi.cation of the model
becomes weak near the unit circle. We adopt a weak instrument asymptotic approximation to
study the behavior of various estimators near the unit circle. We show that an estimator based
on long di¤erencing the model is much less biased than conventional implementations of the
GMM estimator for the dynamic panel model. We also show that under the weak instrument
approximation such conventional estimators are dominated in terms of mean squared error by an
estimator with far less moment conditions. The long di¤erence estimator mimics the infeasible
optimal procedure through its reliance on a small set of moment conditions.


Length:  57 pages
Creation-Date: 2005-07
Revision-Date: 
Publication-Status:
File-URL: http://www.bu.edu/econ/workingpapers/papers/Guido/wp2005/pb3-v16.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2005-024
Classification-JEL: C13, C23, C51

Keywords: dynamic panel, bias correction, second order, unit root, weak instrument

Handle: RePEc:bos:wpaper:WP2005-024