Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/213848
Authors: 
Moundigbaye, Mantobaye
Messemer, Clarisse
Parks, Richard W.
Reed, W. Robert
Year of Publication: 
2020
Citation: 
[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [ISSN:] 1864-6042 [Volume:] 14 [Year:] 2020 [Issue:] 2020-4 [Pages:] 1-18
Abstract: 
This paper shows how to bootstrap hypothesis tests in the context of the Parks's (1967) Feasible Generalized Least Squares estimator. It then demonstrates that the bootstrap outperforms FGLS(Parks)'s top competitor. The FGLS(Parks) estimator has been a workhorse for the analysis of panel data and seemingly unrelated regression equation systems because it allows the incorporation of cross-sectional correlation together with heteroskedasticity and serial correlation. Unfortunately, the associated, asymptotic standard error estimates are biased downward, often severely. To address this problem, Beck and Katz (1995) developed an approach that uses the Prais-Winsten estimator together with 'panel corrected standard errors' (PCSE). While PCSE produces standard error estimates that are less biased than FGLS(Parks), it forces the user to sacrifice efficiency for accuracy in hypothesis testing. The PCSE approach has been, and continues to be, widely used. This paper develops an alternative: a nonparametric bootstrapping procedure to be used in conjunction with the FGLS(Parks) estimator. We demonstrate its effectiveness using an experimental approach that creates artificial panel datasets modelled after actual panel datasets. Our approach provides a superior alternative to existing estimation options by allowing researchers to retain the efficiency of the FGLS(Parks) estimator while producing more accurate hypothesis test results than the PCSE.
Subjects: 
Parks model
FGLS
PCSE
SUR
panel data
cross-sectional correlation
bootstrap
Monte Carlo
simulation
JEL: 
C13
C15
C23
C33
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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