Robust Estimation and Moment Selection in Dynamic Fixed-Effects Panel Data Models

CentER Discussion Paper Series No. 2015-002

39 Pages Posted: 21 Jan 2015

See all articles by Pavel Cizek

Pavel Cizek

Tilburg University - Department of Econometrics & Operations Research

Michele Aquaro

European Commission, Joint Research Centre

Date Written: January 20, 2015

Abstract

This paper extends an existing outlier-robust estimator of linear dynamic panel data models with fixed effects, which is based on the median ratio of two consecutive pairs of first-differenced data. To improve its precision and robust properties, a general procedure based on many pairwise differences and their ratios is designed. The proposed two-step GMM estimator based on the corresponding moment equations relies on an innovative weighting scheme reflecting both the variance and bias of those moment equations, where the bias is assumed to stem from data contamination. To estimate the bias, the influence function is derived and evaluated. The asymptotic distribution as well as robust properties of the estimator are characterized; the latter are obtained both under contamination by independent additive outliers and the patches of additive outliers. The proposed estimator is additionally compared with existing methods by means of Monte Carlo simulations.

Keywords: dynamic panel data, fixed effects, generalized method of moments, influence

JEL Classification: C13, C23

Suggested Citation

Cizek, Pavel and Aquaro, Michele, Robust Estimation and Moment Selection in Dynamic Fixed-Effects Panel Data Models (January 20, 2015). CentER Discussion Paper Series No. 2015-002, Available at SSRN: https://ssrn.com/abstract=2552565 or http://dx.doi.org/10.2139/ssrn.2552565

Pavel Cizek (Contact Author)

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

Michele Aquaro

European Commission, Joint Research Centre ( email )

Via E. Fermi 2749
Ispra (VA), 21027
Italy

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