Asymptotic Properties of Estimators for the Linear Panel Regression Model with Individual Effects and Serially Correlated Errors: The Case of Stationary and Non-Stationary Regressors and Residuals

Center for Policy Research Working Paper No. 93

76 Pages Posted: 20 Apr 2011

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; Syracuse University - Maxwell School of Citizenship and Public Affairs

Chihwa Kao

Syracuse University

Long Liu

University of Texas at San Antonio

Date Written: April 1, 2007

Abstract

This paper studies the asymptotic properties of standard panel data estimators in a simple panel regression model with error component disturbances. Both the regressor and the remainder disturbance term are assumed to be autoregressive and possibly non-stationary. Asymptotic distributions are derived for the standard panel data estimators including ordinary least squares, fixed effects, first-difference, and generalized least squares (GLS) estimators when both T and n are large. We show that all the estimators have asymptotic normal distributions and have different convergence rates dependent on the non-stationarity of the regressors and the remainder disturbances. We show using Monte Carlo experiments that the loss in efficiency of the OLS, FE and FD estimators relative to true GLS can be substantial.

Keywords: Panel Data, OLS, Fixed-Effects, First-Difference, GLS

JEL Classification: C33

Suggested Citation

Baltagi, Badi H. and Kao, Chihwa D. and Liu, Long, Asymptotic Properties of Estimators for the Linear Panel Regression Model with Individual Effects and Serially Correlated Errors: The Case of Stationary and Non-Stationary Regressors and Residuals (April 1, 2007). Center for Policy Research Working Paper No. 93, Available at SSRN: https://ssrn.com/abstract=1815349 or http://dx.doi.org/10.2139/ssrn.1815349

Badi H. Baltagi (Contact Author)

Syracuse University ( email )

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Syracuse, NY 13244-1020
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315-443-1630 (Phone)
315-443-1081 (Fax)

HOME PAGE: http://https://pbaltagi.wix.com/badibaltagi

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
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IZA Institute of Labor Economics

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Germany

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

Chihwa D. Kao

Syracuse University ( email )

900 S. Crouse Avenue
426 Eggers Hall Maxwell School of Citizenship and Public Affairs
Syracuse, NY 13244
United States
315-443-3233 (Phone)
315-443-1081 (Fax)

Long Liu

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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