Autore
Focarelli, Dario

Titolo
Bootstrap bias-correction procedure in estimating long-run relationships from dynamic panels, with an application to money demand in the euro area.
Periodico
Banca d'Italia. Temi di discussione
Anno: 2002 - Volume: 3 - Fascicolo: 440 - Pagina iniziale: 1

In dynamic panel data models, which are particularly well-suited to cross-countryanalysis, the Mean Group estimator (Pesaran and Smith, 1995) is under certain quite strong conditions consistent, but theoretical and empirical evidence indicates that it can be biased when the number of time observations is small. Possible explanations are sample-size bias and omitted variables or measurement errors that are correlated with the regressors. I findsupport for both hypotheses using a Monte Carlo experiment which analyzes cointegratedsystems. A possible solution for the MG estimator bias is a bootstrap bias-correctionprocedure, but Pesaran and Zhao (1999) show that it performs well only when the truecoefficient of the lagged dependent variable is small. In this paper, I test three different bootstrap procedures and obtain an appreciable reduction in the MG estimator bias, especially when the suggestions of Li and Maddala (1997) are applied. Finally, I use bootstrap bias-corrected estimators to investigate the long-run properties of money demand in the euro area.



Testo completo: http://www.bancaditalia.it/pubblicazioni/temidi/td440/tema_440_02.pdf

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