This chapter reviews developments to improve on the poor performance of the standard GMM estimator for highly autoregressive panel series. It considers the use of the system GMM estimator that relies on relatively mild restrictions on the initial condition process. This system GMM estimator...

Monte Carlo studies have shown that estimated asymptotic standard errors of the efficient two-step generalised method of moments (GMM) estimator can be severely downward biased in small samples. The weight matrix used in the calculation of the efficient two-step GMM estimator is based on initial...

This paper tests for the importance of cash flow on investment in fixed capital and R&D using firm-level panel data in two countries between 1985 and 1994. For German firms, cash flow is not informative in simple econometric models of fixed investment or R&D. In identical pecifications for...

We consider the estimation of Cobb-Douglas production functions using panel data covering a large sample of companies observed for a small number of time periods. Standard GMM estimators, which eliminate unobserved firm-specific e¤ects by taking first differences, have been found to produce...