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Keywords:

  • prediction;
  • panel data;
  • random effects;
  • serial correlation;
  • MA (q)

ABSTRACT

This paper considers the problem of forecasting in a panel data model with random individual effects and MA (q) remainder disturbances. It utilizes a recursive transformation for the MA (q) process derived by Baltagi and Li (Econometric Theory 1994; 10: 396–408) which yields a simple generalized least-squares estimator for this model. This recursive transformation is used in conjunction with Goldberger's result (Journal of the American Statistical Association 1962; 57: 369–375) to derive an analytic expression for the best linear unbiased predictor, for the ith cross-sectional unit, s periods ahead. Copyright © 2011 John Wiley & Sons, Ltd.