Document Type
Discussion Paper
Publication Date
5-1-2002
CFDP Number
1362
CFDP Pages
56
Abstract
This paper deals with cross section dependence, homogeneity restrictions and small sample bias issues in dynamic panel regressions. To address the bias problem we develop a panel approach to median unbiased estimation that takes account of cross section dependence. The new estimators given here considerably reduce the effects of bias and gain precision from estimating cross section error correlation. The paper also develops an asymptotic theory for tests of coefficient homogeneity under cross section dependence, and proposes a modified Hausman test to test for the presence of homogeneous unit roots. An orthogonalization procedure is developed to remove cross section dependence and permit the use of conventional and meta unit root tests with panel data. Some simulations investigating the finite sample performance of the estimation and test procedures are reported.
Recommended Citation
Phillips, Peter C.B. and Sul, Donggyu, "Dynamic Panel Estimation and Homogeneity Testing under Cross Section Dependence" (2002). Cowles Foundation Discussion Papers. 1626.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1626