Prediction in the Random Effects Model with MA (q) Remainder Disturbances


Correspondence to: Badi H. Baltagi, Center for Policy Research, 426 Eggers Hall, Syracuse University, Syracuse, NY 13244-1020. E-mail:


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.