Bias Corrected Instrumental Variables Estimation for Dynamic Panel Models with Fixed Effects
Author | : Jinyong Hahn |
Publisher | : |
Total Pages | : 61 |
Release | : 2001 |
ISBN-10 | : OCLC:49807781 |
ISBN-13 | : |
Rating | : 4/5 (81 Downloads) |
Book excerpt: This paper analyzes the second order bias of instrumental variables estimators for a dynamic panel model with fixed effects. Three different methods of second order bias correction are considered. Simulation experiments show that these methods perform well if the model does not have a root near unity but break down near the unit circle. To remedy the problem near the unit root a weak instrument approximation is used. We show that an estimator based on long differencing the model is approximately achieving the minimal bias in a certain class of instrumental variables (IV) estimators. Simulation experiments document the performance of the proposed procedure in finite samples. Keywords: dynamic panel, bias correction, second order, unit root, weak instrument.