Beruflich Dokumente
Kultur Dokumente
Presenters:
Irene Bayiyana
Aheisibwe Ambrose R
Maphosa Nobuhle
CPP-JEF 2015 Econometrics II
Introduction
To describe the dynamic panel and
motivate its use (This is mostly a practical
guide to its use).
To differentiate between the Arellano-Bond
and Arellano-Bovver approaches.
To discuss the problems of unit roots in
panel data.
To introduce the concept of cointegration
in panel data.
Individual Effects
The dynamic panel approach accounts for the
individual effects, as with other panel data
models. In the main approach of Arellano-Bond,
this entails differencing the data.
This means it is difficult to include dummy
variables in these models.
Although the individual effects applies to the
cross section, two way individual effects can
also be included, using time dummy variables.
Specify model.
Choose whether to use differencing or orthogonal
deviations to account for fixed effects.
Specify instruments (often lagged values of all
variables in model)
Choose method for adjusting standard errors, to
overcome heteroskedasticity. This is usually Whites
adjustment.
Use the Sargan test to determine if the instruments are
suitable (Test for overidentifying restrictions)
yit yi ,t 1
pi
L 1
Levin Lin
The error terms across the cross sections
are assumed to be independent.
It is assumed the is the same across all
the cross sections.
The lag length for the lagged dependent
variables is chosen in the usual way.
As with ADF tests, a trend can also be
included in the test.
IPS Test
The IPS test in effect follows the model below:
pi
Panel Cointegration
The main approaches to cointegration have the same
advantages as the panel unit root tests, in that they
increase the power of the test.
There are essentially two approaches, one based on the
Engle-Granger approach and the other using a
Johansen ML type methodology.
There are in turn variations of both approaches, for
example in the Engle Granger approach, there is the
Kao test, which assumes the same values across all
cross sections, whereas Pedroni assumes they can vary
across the cross sections, in effect allowing considerable
differences in the dynamics across the cross sections.
Conclusion
The dynamic panel allows dynamic effects
to be introduced into the model.
There are basically two different methods,
which differ in how the fixed effects are
measured.
Both unit root tests and tests for
cointegration can be conducted with panel
data, which increases the power of the
tests.