UCL Discovery
UCL home » Library Services » Electronic resources » UCL Discovery

Initial conditions and Blundell–Bond estimators

Blundell, R; Bond, S; (2023) Initial conditions and Blundell–Bond estimators. Journal of Econometrics , 234 pp. 101-110. 10.1016/j.jeconom.2023.01.020.

[thumbnail of Blundell_Bond_commentary_Jan_24_2023.pdf] Text
Blundell_Bond_commentary_Jan_24_2023.pdf - Accepted Version
Access restricted to UCL open access staff until 4 February 2025.

Download (270kB)

Abstract

We place the Blundell–Bond paper in the context of the early development of panel data estimators that accounted for unobserved heterogeneity, dynamics and persistent economic series. The initial work focused on appropriate econometric methods to estimate dynamic models using unbalanced panel data with many firms and/or individuals but covering a small number of time periods. Eliminating the unobserved firm-specific ‘fixed’ effects by taking first-differences and using as instruments suitably lagged values of the dependent variable, and of endogenous or predetermined explanatory variables, led to the first-differenced GMM estimators popularised by Arellano and Bond (1991). This approach was less well suited to models which relate highly persistent series. Following Arellano and Bover (1995) we examined the use of suitably lagged first-differences as instruments for the equations in levels and derived the conditions, particularly on initial conditions, under which first-differences of the dependent variable would or would not be uncorrelated with individual-specific ‘fixed’ effects. An influential contribution was to illustrate the magnitude of the bias when the first-differenced GMM estimator is used to estimate autoregressive models for highly persistent series, and the potential to reduce that bias by using additional valid moment conditions for the equations in levels — thereby popularising the use of these extended or ‘System’ GMM estimators.

Type: Article
Title: Initial conditions and Blundell–Bond estimators
DOI: 10.1016/j.jeconom.2023.01.020
Publisher version: https://doi.org/10.1016/j.jeconom.2023.01.020
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Panel data, fixed effects, persistent series, weak instruments, system estimator.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/10166221
Downloads since deposit
1Download
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item