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st: dynamic panel models with fixed effects

From   "Tomislav Kovandzic" <>
To   <>
Subject   st: dynamic panel models with fixed effects
Date   Sat, 8 Jul 2006 13:22:15 -0500

Dear List,

I'm working with state panel data for roughly 30 years and estimating a
fixed-effects model with a lagged dependent variable on the right-hand
side to address autocorrelation.  Several colleagues have informed me
that including a lagged dependent variables on the RHS when utilizing a
fixed-effects model is simply a no-no, i.e. such estimations yield
inconsistent estimates.  My question is whether the inconsistency dies
away as the number of time-periods goes off to infinity?  If so, are
there any rules of thumb as to how many time periods are needed to
mitigate the problems described above.  A reference would be much
appreciated.  If the estimates are inconsistent regardless of the number
of time-periods, can someone offer an alternative approach to correcting
for autocorrelation when using a fixed-effects model?  Would cluster
robust standard errors do the trick?  Thanks in advance.



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