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Identifying State Dependence in Non-Stationary Processes

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  • Timothy Halliday

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    (Department of Economics, University of Hawaii at Manoa
    John A. Burns School of Medicine, University of Hawaii at Manoa)

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    Abstract

    We consider the identification of state dependence in a non-stationary process of binary outcomes within the context of the dynamic logit model with time-variant transition probabilities and an arbitrary distribution for the unobserved heterogeneity. We derive a simple identification result that allows us to calculate a test for state dependence in this model. We also consider alternative tests for state dependence that will have desirable properties only in stationary processes and derive their asymptotic properties when the true underlying process is non-stationary. Finally, we provide Monte Carlo evidence that shows a range of non-stationarity in which the effects of mis-specifying the binary process as stationary are not too large.

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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_06-1.pdf
    File Function: First version, 2006
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    Bibliographic Info

    Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200601.

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    Length: 29 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:hai:wpaper:200601

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    Keywords: Dynamic Panel Data Models; State Dependence; Non-Stationary Processes;

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    1. Thierry Magnac, 2004. "Panel Binary Variables and Sufficiency: Generalizing Conditional Logit," Econometrica, Econometric Society, vol. 72(6), pages 1859-1876, November.
    2. Bo E. Honoré & Elie Tamer, 2002. "Bounds on Parameters in Dynamic Discrete Choice Models," CAM Working Papers 2004-23, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics, revised Aug 2004.
    3. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
    4. Hahn, Jinyong, 2001. "The Information Bound Of A Dynamic Panel Logit Model With Fixed Effects," Econometric Theory, Cambridge University Press, vol. 17(05), pages 913-932, October.
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