Measurement Error in the Linear Dynamic Panel Data Model
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We study measurement error in the simplest dynamic panel data model without covariates. We start by investigating the first-order effects, on the most commonly used estimator, of the presence of measurement error. As was to be expected, measurement error renders this estimator inconsistent. However, with a slight adaptation, the estimator can be made consistent. This approach to consistent estimation is ad hoc and we next develop a systematic approach to consistent estimation. We show how to obtain the most efficient estimator from this class of consistent estimators. We illustrate our findings through an empirical example.
KeywordsArellano–Bond estimator Anderson–Hsiao estimator Attenuation Dynamic model Measurement error Panel data Systems GMM Wansbeek–Bekker estimator
We would like to thank the symposium organizer, Brajendra Sutradhar, and an anonymous reviewer of an earlier version of this paper for their useful comments and suggestions.
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