Cui, Guowei, Sarafidis, Vasilis and Yamagata, Takashi orcid.org/0000-0001-5949-8833 (2022) IV Estimation of Spatial Dynamic Panels with Interactive Effects:Large Sample Theory and an Application on Bank Attitude Toward Risk. Econometrics Journal. utac026. ISSN 1368-4221
Abstract
The present paper develops a new Instrumental Variables (IV) estimator for spatial, dynamic panel data models with interactive effects under large N and T asymptotics. For this class of models, the only approaches available in the literature are based on quasi-maximum likelihood estimation. The approach put forward in this paper is appealing from both a theoretical and a practical point of view for a number of reasons. Firstly, the proposed IV estimator is linear in the parameters of interest and it is computationally inexpensive. Secondly, the IV estimator is free from asymptotic bias. In contrast, existing QML estimators suffer from incidental parameter bias, depending on the magnitude of unknown parameters. Thirdly, the IV estimator retains the attractive feature of Method of Moments estimation in that it can accommodate endogenous regressors, so long as external exogenous instruments are available. The IV estimator is consistent and asymptotically normal as N, T go to infinity, with N/T^2 going to 0 and T/N^2 tending to 0. The proposed methodology is employed to study the determinants of risk attitude of banking institutions. The results of our analysis provide evidence that the more risk-sensitive capital regulation that was introduced by the Basel III framework in 2011 has succeeded in influencing banks’ behavior in a substantial manner.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © The Author(s) 2022 |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 22 Jun 2022 09:30 |
Last Modified: | 26 Nov 2024 00:53 |
Published Version: | https://doi.org/10.1093/ectj/utac026 |
Status: | Published online |
Refereed: | Yes |
Identification Number: | 10.1093/ectj/utac026 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:188272 |
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Description: IV estimation of spatial dynamic panels with interactive effects: large sample theory and an application on bank attitude towards risk
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