Autocorrelation

Ordinary least squares

Random effects model

Statistical inference

Statistics

Applied mathematics

Panel data

Computer science

Covariance

Fixed effects model

Least-squares function approximation

Correlation

Mathematics

Estimator

Generalized least squares

Autoregressive model

Inference

Econometrics

Meta-analysis

Internal medicine

Artificial intelligence

Geometry

Medicine

Journal of Econometrics

In this paper, I consider generalized least squares (GLS) estimation in fixed effects panel and multilevel models with autocorrelation. The presence of fixed effects complicates implementation of GLS as estimating the fixed effects will typically render standard estimators of the covariance parameters necessary for obtaining feasible GLS estimates inconsistent. I focus on the case where the disturbances follow an AR(p) process and offer a simple to implement bias-correction for the AR coefficients. The usefulness of GLS and the derived bias-correction for the parameters of the autoregressive process is illustrated through a simulation study which uses data from the Current Population Survey.

Generalized least squares inference in panel and multilevel models with serial correlation and fixed effects