Journal
JOURNAL OF ECONOMETRICS
Volume 207, Issue 1, Pages 114-128Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jeconom.2018.04.005
Keywords
Dynamic panel models; Individual effects; Initial values; Projection method; Conditional or unconditional likelihood approach
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Funding
- China NSF [71103004, 71631004]
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We use a quasi-likelihood function approach to clarify the role of initial values and the relative sample size of the cross-section dimension N and the time series dimension Ton the asymptotic properties of estimators for dynamic panel data models with the presence of individual-specific effects. We show that a properly specified quasi-likelihood estimator (QMLE) that uses the Mundlak Chamberlain approach to condition the unobserved effects and initial values on the observed strictly exogenous covariates is asymptotically unbiased if N goes to infinity whether T is fixed or goes to infinity. Monte Carlo studies are conducted to demonstrate the importance of properly treating initial values in getting valid statistical inference. The simulation results also suggest that to deal with the incidental parameters issues arising from the presence of individual-specific effects or initial values, following the Mundlak's (1978) suggestion to condition on the time series average of individual's observed regressors performs better than conditioning on each observed variable at all different time periods. (C) 2018 Elsevier B.V. All rights reserved.
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