Abstract :
This paper develops new estimation and inference procedures for dynamic panel
data models with fixed effects and incidental trends. A simple consistent GMM estimation
method is proposed that avoids the weak moment condition problem that is
known to affect conventional GMM estimation when the autoregressive coefficient
(ρ) is near unity. In both panel and time series cases, the estimator has standard
Gaussian asymptotics for all values of ρ ∈ (−1, 1] irrespective of how the composite
cross-section and time series sample sizes pass to infinity. Simulations reveal that
the estimator has little bias even in very small samples. The approach is applied to
panel unit root testing.
