Handling the measurement error problem by means of panel data: Moment methods applied on firm data



errors, clearly illustrate the attenuation effect. They have, however, different degree
of robustness. While
βOLS is neither robust to firm specific heterogeneity nor to
trend effects,
βWF and βOLSD are robust to firm specific heterogeneity (which is
potentially correlated with the regressand or the regressor), but not robust to trend
effects, and
βOLSDC and βWFDC are robust to both firm specific heterogeneity and
a linear trend. For materials, unlike capital,
βOLSD , βOLSDC , and βWFDC give
fairly equal estimates in all sectors.

Although these examples show that it is possible to construct consistent esti-
mators, which give estimates of reasonable size (at least for materials), from period
means, their efficiency may be low, since they do not exploit any inter-individual
variation in the data, and the latter often tends to dominate. Therefore there is
a potential to improve the estimation by considering methods which utilizes this
inter-individual variation. One such method is the GMM.

4 The principle of GMM estimation

Before elaborating the GMM procedures for our panel data situation, we de-
scribe some generalities of this procedure, referring to,
e.g, Davidson and MacKin-
non (1993, Chapter 17) and Harris and Matyas (1999) for more detailed expositions.
Assume, in general, that we want to estimate the (
K × 1) coefficient vector β in
the equation

(18)                           y=+,

where y and are scalars and x isa(1× K) regressor vector. There exists an instru-
ment vector
z, of dimension (1 × G), for x (G ≥ K), satisfying the orthogonality
conditions

(19)                     E(z0)=E[z0(y-xβ)]=0G,1.

These conditions are assumed to be derived from the economic theory and the
statistical auxiliary hypotheses (
e.g., about disturbance/error autocorrelation) un-
derlying our model. We have
n observations on (y, x, z), denoted as (yj , xj , zj),j =

10



More intriguing information

1. CONSUMER ACCEPTANCE OF GENETICALLY MODIFIED FOODS
2. FOREIGN AGRICULTURAL SERVICE PROGRAMS AND FOREIGN RELATIONS
3. The name is absent
4. Financial Development and Sectoral Output Growth in 19th Century Germany
5. THE RISE OF RURAL-TO-RURAL LABOR MARKETS IN CHINA
6. A Principal Components Approach to Cross-Section Dependence in Panels
7. Contribution of Economics to Design of Sustainable Cattle Breeding Programs in Eastern Africa: A Choice Experiment Approach
8. Are class size differences related to pupils’ educational progress and classroom processes? Findings from the Institute of Education Class Size Study of children aged 5-7 Years
9. Howard Gardner : the myth of Multiple Intelligences
10. On the Real Exchange Rate Effects of Higher Electricity Prices in South Africa
11. On the Desirability of Taxing Charitable Contributions
12. The Cost of Food Safety Technologies in the Meat and Poultry Industries.
13. The name is absent
14. The name is absent
15. The name is absent
16. Forecasting Financial Crises and Contagion in Asia using Dynamic Factor Analysis
17. THE WAEA -- WHICH NICHE IN THE PROFESSION?
18. The Values and Character Dispositions of 14-16 Year Olds in the Hodge Hill Constituency
19. Sectoral specialisation in the EU a macroeconomic perspective
20. O funcionalismo de Sellars: uma pesquisa histδrica