Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 27/2012: Panel Data Dynamics and Measurement Errors: GMM Bias, IV Validity and Model Fit – A Monte Carlo Study
Erik Biørn () and Xuehui Han ()
Additional contact information
Erik Biørn: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Xuehui Han: Fudan University, Postal: Department of Finance , School of Management , Fudan University, 670 Guoshun Road , Shanghai , China, 200433
Abstract: An autoregressive fixed effects panel data equation in error-ridden endogenous and exogenous variables, with finite memory of disturbances, latent regressors and measurement errors is considered. Finite sample properties of GMM estimators are explored by Monte Carlo (MC) simulations. Two kinds of estimators are compared with respect to bias, instrument (IV) validity and model fit: equation in differences/IVs levels, equation in levels/IVs in differences. We discuss the impact on estimators’ bias and other properties of their distributions of changes in the signal-noise variance ratio, the length of the signal and noise memory, the strength of autocorrelation, the size of the IV set, and the panel length. Finally, some practical guidelines are provided.
Keywords: Panel data; Measurement error; ARMA model; GMM; Signal-noise ratio; Error memory; IV validity; Monte Carlo simulation; Finite sample bias
26 pages, October 24, 2012
Full text files
memo-27-2012.pdf
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