Estimating panel models with internal and external habit formation

Research output: Contribution to journalArticlepeer-review

69 Scopus citations


A new bias-corrected estimator is developed for dynamic panel model with both fixed and spatial effects. The estimator is asymptotically unbiased, normally distributed, and it has good finite sample properties (low finite sample bias and root mean squared error). Applying the estimator to annual consumption data for the continental U.S. states shows that state consumption growth is not significantly affected by its own (lagged) consumption growth. However, it is affected by lagged consumption growth of nearby states. These results support external habit formation model, which have been used to explain the behavior of U.S. stock returns.

Original languageEnglish (US)
Pages (from-to)145-158
Number of pages14
JournalJournal of Business and Economic Statistics
Issue number1
StatePublished - Jan 2010
Externally publishedYes


  • Asset pricing
  • Bias correction
  • Instrumental variables
  • Spatial and dynamic effects
  • U.S. state consumption

ASJC Scopus subject areas

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty


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