Estimation of fixed effects spatial dynamic panel data models with small T and unknown heteroskedasticity

• Main Authors: LI, Liyao, YANG, Zhenlin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Adjusted quasi score; Dynamic panels; Fixed effects; Initial-condition; Martingale difference; Short panels; Spatial effects; Unknown heteroskedasticity; Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2360; https://ink.library.smu.edu.sg/context/soe_research/article/3359/viewcontent/LiYang2020.pdf
• Institution: Singapore Management University

We consider the estimation and inference of fixed effects (FE) spatial dynamic panel data (SDPD) models under small T and unknown heteroskedasticity by extending the M-estimation strategy for homoskedastic FE-SDPD model of Yang (2018, Journal of Econometrics). Unbiased estimating equations are obtained by adjusting the conditional quasi-score functions given the initial observations, leading to M-estimators that are free from the initial conditions and robust against unknown cross-sectional heteroskedasticity. Consistency and asymptotic normality of the proposed M-estimator are established. The standard errors are obtained by representing the estimating equations as sums of martingale differences. Monte Carlo results show that the proposed M-estimators have good finite sample performance. The practical importance and relevance of allowing for heteroskedasticity in the model is illustrated using data on sovereign risk spillover.