Publication Date: January 2007
This paper develops new estimation and inference procedures for dynamic panel data models with ﬁxed eﬀects and incidental trends. A simple consistent GMM estimation method is proposed that avoids the weak moment condition problem that is known to aﬀect conventional GMM estimation when the autoregressive coeﬀicient (rho) is near unity. In both panel and time series cases, the estimator has standard Gaussian asymptotics for all values of rho in (-1, 1] irrespective of how the composite cross section and time series sample sizes pass to inﬁnity. Simulations reveal that the estimator has little bias even in very small samples. The approach is applied to panel unit root testing.
Asymptotic normality, Asymptotic power envelope, Moment conditions, Panel unit roots, Point optimal test, Unit root tests, Weak instruments
JEL Classification Codes: C22, C23
See CFP: 1290