Hi everyone! I am wirting a paper about economic growth in pandemic. I have a panel data with 24 countrys and 4 periods. I received a recomandetion to use EGLS method. I used this method in Eviews, but I don't know much about this method to justify choosing it and interpreting it. I know it is used when we have heteroschedasticity and autocorrelation.
Thank you, all!
Kaur, G. (2021). Empirical Study of Price Volatility of Staple Foodgrains Commodities During Covid19 in India by GARCH Model using CPI. Global Journal of Enterprise Information System, 13(1), 9-18.
Robert Traistaru , GLS was proposed as a solution to the presence of autocorrelation or heteroscedasticity, which violates the OLS assumption that the error terms are uncorrelated and with constant variance, meaning that the Gauss Markov theorem does not apply and hence the OLS estimators are no longer BLUE, i.e. the estimates are inefficient. In short, the justification for using GLS is the presence of some form of autocorrelation or heteroscedasticity in the errors.
However, when you do not know the value of rho (needed for GLS), and you need to estimate the value (which tends to be the case), then you apply in practice Estimated GLS (EGLS), aka FGLS. While GLS is more efficient than OLS under heteroscedasticity or autocorrelation, EGLS is only asymptotically more efficient, but in small or medium sample sizes, it can be less efficient than OLS. So, if you have a moderate to small sample size, using EGLS is actually worst than using OLS.
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