Bias-corrected estimation of panel vector autoregressions

Geert Dhaene (1) , Koen Jochmans (2)

1 KU Leuven - Catholic University of Leuven - Katholieke Universiteit Leuven
2 ECON - Département d'économie (Sciences Po)

We derive bias-corrected least-squares estimators of panel vector autoregressions with fixed effects. The correction is straightforward to implement and yields an estimator that is asymptotically unbiased under asymptotics where the number of time series observations grows at the same rate as the number of cross-sectional observations. This makes the estimator well suited for most macroeconomic data sets. Simulation results show that the estimator yields substantial improvements over within-group least-squares estimation. We illustrate the bias correction in a study of the relation between the unemployment rate and the economic growth rate at the U.S. state level.

Keywords: vector autoregression; fixed effects; panel data; bias correction

Domains: Economics and Finance

Geert Dhaene, Koen Jochmans. Bias-corrected estimation of panel vector autoregressions. 2015. ⟨hal-01174330v1⟩