| Abstract: | We assess the asymptotic consequences of estimating static models based on cross-section or panel data, when in reality the data are generated by a dynamic relationship, involving lagged dependent and current and lagged exogenous variables as well as individual effects. If the exogenous variable follows a stationary process, then the static estimators usually underestimate its long-run effect. This inconsistency is less severe, the higher the autocorrelation of the exogenous variable. If the exogenous variable follows a random walk with or without individual-specific drift, then the estimators are found to be consistent for the long-run effect. |
