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Modeling Dynamics in Time-Series–Cross-Section Political Economy Data

Beck, Nathaniel and Katz, Jonathan N. (2009) Modeling Dynamics in Time-Series–Cross-Section Political Economy Data. Social Science Working Paper, 1304. California Institute of Technology , Pasadena, CA. (Unpublished) http://resolver.caltech.edu/CaltechAUTHORS:20170727-141913417

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Abstract

This paper deals with a variety of dynamic issues in the analysis of time- series–cross-section (TSCS) data. While the issues raised are more general, we focus on applications to political economy. We begin with a discussion of specification and lay out the theoretical differences implied by the various types of time series models that can be estimated. It is shown that there is nothing pernicious in using a lagged dependent variable and that all dynamic models either implicitly or explicitly have such a variable; the differences between the models relate to assumptions about the speeds of adjustment of measured and unmeasured variables. When adjustment is quick it is hard to differentiate between the various models; with slower speeds of adjustment the various models make sufficiently different predictions that they can be tested against each other. As the speed of adjustment gets slower and slower, specification (and estimation) gets more and more tricky. We then turn to a discussion of estimation. It is noted that models with both a lagged dependent variable and serially correlated errors can easily be estimated; it is only OLS that is inconsistent in this situation. We then show, via Monte Carlo analysis shows that for typical TSCS data that fixed effects with a lagged dependent variable performs about as well as the much more complicated Kiviet estimator, and better than the Anderson-Hsiao estimator (both designed for panels).


Item Type:Report or Paper (Working Paper)
ORCID:
AuthorORCID
Katz, Jonathan N.0000-0002-5287-3503
Additional Information:For research support we thank the National Science Foundation. And earlier version was presented at the Annual Meeting of the Society for Political Methodology, Stanford University, Stanford, CA., July 29-31, 2004. We thank Geof Garrett, Evelyne Huber and John Stephens for providing data and many colleagues who have discussed TSCS issues with us and allowed us to present in various forums. Published as Beck, N., & Katz, J.N. (2011). Modeling dynamics in time-series–cross-section political economy data. Annual Review of Political Science, 14, 331-352.
Group:Social Science Working Papers
Funders:
Funding AgencyGrant Number
NSFUNSPECIFIED
Subject Keywords:lagged dependent variables, correlated errors, error correction model, non-stationarity, model specification
Record Number:CaltechAUTHORS:20170727-141913417
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20170727-141913417
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79502
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:02 Aug 2017 21:23
Last Modified:02 Aug 2017 21:23

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