Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300401 
Year of Publication: 
2024
Series/Report no.: 
cemmap working paper No. CWP09/24
Publisher: 
Centre for Microdata Methods and Practice (cemmap), London
Abstract: 
The Arellano-Bond estimator is a fundamental method for dynamic panel data models, widely used in practice. However, the estimator is severely biased when the data's time series dimension T is long due to the large degree of overidentification. We show that weak dependence along the panel's time series dimension naturally implies approximate sparsity of the most informative moment conditions, motivating the following approach to remove the bias: First, apply LASSO to the cross-section data at each time period to construct most informative (and cross-fitted) instruments, using lagged values of suitable covariates. This step relies on approximate sparsity to select the most informative instruments. Second, apply a linear instrumental variable estimator after first differencing the dynamic structural equation using the constructed instruments. Under weak time series dependence, we show the new estimator is consistent and asymptotically normal under much weaker conditions on T's growth than the Arellano-Bond estimator. Our theory covers models with high dimensional covariates, including multiple lags of the dependent variable, common in modern applications. We illustrate our approach by applying it to weekly county-level panel data from the United States to study opening K-12 schools and other mitigation policies' short and long-term effects on COVID-19's spread.
Subjects: 
Dynamic panel model
Arellano-Bond Estimator
GMM
LASSO
Debiasing
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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