Estimation and inference of a cointegrated regression in panel data: A monte carlo study

Bangtian Chen; Suzanne K. Mc Coskey; Chihwa Kao

doi:10.1080/01966324.1999.10737475

Estimation and inference of a cointegrated regression in panel data: A monte carlo study

Bangtian Chen, Suzanne K. Mc Coskey, Chihwa Kao

Department of Economics

Research output: Contribution to journal › Article › peer-review

60 Scopus citations

Abstract

This paper studies the finite sample properties of the least squares dummy variable (LSDV) estimator and t-statistic in a cointegrated regression in panel data. Through Monte Carlo studies we find that both the LSDV estimator and the t-statistic have a small amount of bias, and the t-statistic diverges as the cross-sectional dimension increases. We also find that the bias-corrected LSDV estimator and the bias-corrected t-statistic do not reduce the magnitude of the bias problem.

Original language	English (US)
Pages (from-to)	75-114
Number of pages	40
Journal	American Journal of Mathematical and Management Sciences
Volume	19
Issue number	1-2
DOIs	https://doi.org/10.1080/01966324.1999.10737475
State	Published - Jan 1 1999

Keywords

Cointegration
Monte Carlo simulation
Panel data

ASJC Scopus subject areas

General Business, Management and Accounting
Applied Mathematics

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10.1080/01966324.1999.10737475

Cite this

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abstract = "This paper studies the finite sample properties of the least squares dummy variable (LSDV) estimator and t-statistic in a cointegrated regression in panel data. Through Monte Carlo studies we find that both the LSDV estimator and the t-statistic have a small amount of bias, and the t-statistic diverges as the cross-sectional dimension increases. We also find that the bias-corrected LSDV estimator and the bias-corrected t-statistic do not reduce the magnitude of the bias problem.",

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N2 - This paper studies the finite sample properties of the least squares dummy variable (LSDV) estimator and t-statistic in a cointegrated regression in panel data. Through Monte Carlo studies we find that both the LSDV estimator and the t-statistic have a small amount of bias, and the t-statistic diverges as the cross-sectional dimension increases. We also find that the bias-corrected LSDV estimator and the bias-corrected t-statistic do not reduce the magnitude of the bias problem.

AB - This paper studies the finite sample properties of the least squares dummy variable (LSDV) estimator and t-statistic in a cointegrated regression in panel data. Through Monte Carlo studies we find that both the LSDV estimator and the t-statistic have a small amount of bias, and the t-statistic diverges as the cross-sectional dimension increases. We also find that the bias-corrected LSDV estimator and the bias-corrected t-statistic do not reduce the magnitude of the bias problem.

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KW - Monte Carlo simulation

KW - Panel data

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Estimation and inference of a cointegrated regression in panel data: A monte carlo study

Abstract

Keywords

ASJC Scopus subject areas

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