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On the Estimation and Inference of a Cointegrated Regression in Panel Data

1997; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.2379

1556-5068

Chihwa Kao, Min‐Hsien Chiang,

Fiscal Policy and Economic Growth

In this paper, we study the asymptotic distributions for least-squares (OLS), fully modified (FM), and dynamic OLS (DOLS) estimators in cointegrated regression models in panel data. We show that the OLS, FM, and DOLS estimators are all asymptotically normally distributed. However, the asymptotic distribution of the OLS estimator is shown to have a non-zero mean. Monte Carlo results examine the sampling behavior of the proposed estimators and show that (1) the OLS estimator has a non-negligible bias in finite samples, (2) the FM estimator does not improve over the OLS estimator in general, and (3) the DOLS out-performs both the OLS and FM estimators.