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Prediction in the one‐way error component model with serial correlation
Author(s) -
Baltagi Badi H.,
Li Ql
Publication year - 1992
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.3980110605
Subject(s) - remainder , component (thermodynamics) , autocorrelation , process (computing) , transformation (genetics) , correlation , computer science , term (time) , algorithm , statistics , mathematics , arithmetic , biochemistry , physics , chemistry , geometry , quantum mechanics , gene , thermodynamics , operating system
Abstract This paper derives the best linear unbiased predictor for a one‐way error component model with serial correlation. A transformation derived by Baltagi and Li (1991) is used to show how the forecast can be easily computed from the GLS estimates and residuals. This result is useful for panel data applications which utilize the error component specification and exhibit serial correlation in the remainder disturbance term. Analytical expressions for this predictor are given when the remainder disturbances follow (1) an AR(1) process, (2) an AR(2) process, (3) a special AR(4) process for quarterly data, and (4) an MA(1) process.