Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 577: System GMM estimation of panel data models with time varying slope coefficients
Yoshihiro Sato () and Måns Söderbom ()
Additional contact information
Yoshihiro Sato: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 Gothenburg, Sweden, , Also: Stockholm School of Economics
Måns Söderbom: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: PO. Box 640, SE 40530 Gothenburg, Sweden
Abstract: We highlight the fact that the Sargan-Hansen test for GMM estimators applied to panel data is a joint test of valid orthogonality conditions and coefficient stability over time. A possible reason why the null hypothesis of valid orthogonality conditions is rejected is therefore that the slope coefficients vary over time. One solution is to estimate an empirical model where the coefficients are time specifi…c. We apply this solution to the system GMM estimatior of the Cobb-Douglas production functions for a selection of Swedish industries, and …find that relaxing the assumption that slope coefficients are constant over time results in considerably more satisfactory outcomes of the Sargan-Hansen test.
Keywords: panel data; system GMM estimation; time-varying coefficients; overidentifying restrictions
18 pages, December 10, 2013
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