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Asymptotic consequences of neglected dynamics in individual effects models *
Author(s) -
Doel I. T.,
Kiviet J. F.
Publication year - 1994
Publication title -
statistica neerlandica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.52
H-Index - 39
eISSN - 1467-9574
pISSN - 0039-0402
DOI - 10.1111/j.1467-9574.1994.tb01432.x
Subject(s) - autocorrelation , estimator , econometrics , variable (mathematics) , mathematics , panel data , random walk , statistics , instrumental variable , mathematical analysis
We assess the asymptotic consequences of estimating static models based on cross‐section or panel data, when in reality the data are generated by a dynamic relationship, involving lagged dependent and current and lagged exogenous variables as well as individual effects. If the exogenous variable follows a stationary process, then the static estimators usually underestimate its long‐run effect. This inconsistency is less severe, the higher the autocorrelation of the exogenous variable. If the exogenous variable follows a random walk with or without individual‐specific drift, then the estimators are found to be consistent for the long‐run effect.