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A Reconsideration of Consistent Estimation of a Dynamic Panel Data Model in the Random Effects (Error Components) Framework

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dc.contributor.authorAshley, Richard A.en
dc.contributor.departmentEconomicsen
dc.date.accessioned2019-07-17T15:14:59Zen
dc.date.available2019-07-17T15:14:59Zen
dc.date.issued2010-04-19en
dc.description.abstractIt is widely believed that the inclusion of lagged dependent variables in a panel data model necessarily renders the Random Effects (RE) estimators, based on OLS applied to the quasi-differenced variables, inconsistent. It is shown here that this belief is incorrect under the usual assumption made in this context — i.e., that the other regressors are strictly exogenous. This result follows from the fact that lagged values of the deviation of the quasi-differenced dependent variable from its mean can be written as a weighted sum of the past values of the quasi-differenced model error term, whereas these quasi-differenced errors are serially uncorrelated by construction. The RE estimators are therefore consistent. Thus, since instrumental variables methods { e.g., Arellano and Bond (1991) — clearly provide less precise estimates, the RE estimates are preferable if a Hausman test is unable to reject the null hypothesis that the parameter estimates of interest from both methods are equal.en
dc.format.extent4 pagesen
dc.format.mimetypeapplication/pdfen
dc.identifier.sourceurlhttp://www.ashleymac.econ.vt.edu/working_papers/random_effects_note.pdfen
dc.identifier.urihttp://hdl.handle.net/10919/91477en
dc.language.isoenen
dc.publisherVirginia Techen
dc.relation.ispartofseriesJEL Classication: C23en
dc.rightsIn Copyrighten
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/en
dc.subjectPanel dataen
dc.subjectrandom effects modelen
dc.subjecterror components modelen
dc.titleA Reconsideration of Consistent Estimation of a Dynamic Panel Data Model in the Random Effects (Error Components) Frameworken
dc.typeWorking paperen
dc.type.dcmitypeTexten

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