Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2014:7: A Monte Carlo Study of a Factor Analytical Method for Fixed-Effects Dynamic Panel Models

Milda Norkute ()
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Milda Norkute: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: In a recent article Bai (Fixed-Effects Dynamic Panel Models, A Factor Analytical Method. Econometrica 81, 285-314, 2013a) proposes a new factor analytical method (FAM) for the estimation of fixed-effects dynamic panel data models, which has the unique and very useful property that it is asymptotically bias free. In this paper we provide Monte Carlo evidence of the good small-sample performance of FAM, that complement Bai's theoretical study.

Keywords: Dynamic panel data models; Heteroscedasticity; Monte Carlo simulations

JEL-codes: C13; C33

20 pages, February 18, 2014

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