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A SIMPLE EFFICIENT INSTRUMENTAL VARIABLE ESTIMATOR FOR PANEL AR(p) MODELS WHEN BOTH N AND T ARE LARGE

Published online by Cambridge University Press:  01 June 2009

Kazuhiko Hayakawa
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Abstract

In this paper, we show that for panel AR(p) models, an instrumental variable (IV) estimator with instruments deviated from past means has the same asymptotic distribution as the infeasible optimal IV estimator when both N and T, the dimensions of the cross section and time series, are large. If we assume that the errors are normally distributed, the asymptotic variance of the proposed IV estimator is shown to attain the lower bound when both N and T are large. A simulation study is conducted to assess the estimator.

Type
Brief Report
Information
Econometric Theory , Volume 25 , Issue 3 , June 2009 , pp. 873 - 890
Copyright
Copyright © Cambridge University Press 2009

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Footnotes

The author is deeply grateful to the co-editor, two anonymous referees, Kaddour Hadri, Chirok Han, Cheng Hsiao, Naoto Kunitomo, Eiji Kurozumi, Kosuke Oya, Peter Phillips, Donggyu Sul, Taku Yamamoto, and the participants of the 14th International Conference of Panel Data at Xiamen University, the Fall meeting of the Japanese Economic Association at Nihon University, the Hitotsubashi Conference on Econometrics 2007, and the special 18th meeting of the New Zealand Econometric Study Group at the University of Auckland for helpful comments. The author also acknowledges Ryo Okui, who posed a question that inspired this paper. The research benefited from the JSPS fellowship and a Grant-in-Aid for Scientific Research (KAKENHI 20830056) of the JSPS. All remaining errors are mine. Finally, this paper is dedicated to the late Professor Satoru Kanoh, who provided useful comments on an early version of this paper.

References

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