Using Lasso-Type Penalties to Model Time-Varying Covariate Effects in Panel Data Regressions – A Novel Approach Illustrated by the ‘Death of Distance’ in International Trade
AbstractWhen analyzing panel data using regression models, it is often reasonable to allow for time-varying covariate effects. We propose a novel approach to modelling timevarying coefficients in panel data regressions, which is based on penalized regression techniques. To illustrate the usefulness of this approach, we revisit the well-known empirical puzzle of the ‘death of distance’ in international trade. We find significant differences between results obtained with the proposed estimator and those obtained with ‘traditional’ methods. The proposed method can also be used for model selection, and to allow covariate effects to vary over other dimensions than time.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 961.
Length: 29 pages
Date of creation: 13 Mar 2013
Date of revision:
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More information through EDIRC
Penalized Regression; Lasso-type Penalties; Varying Coefficient Models; Gravity; Death of Distance; Missing Globalization Puzzle;
Other versions of this item:
- Hess, Wolfgang & Persson, Maria & Rubenbauer, Stephanie & Gertheiss, Jan, 2013. "Using Lasso-Type Penalties to Model Time-Varying Covariate Effects in Panel Data Regressions - A Novel Approach Illustrated by the 'Death of Distance' in International Trade," Working Papers 2013:5, Lund University, Department of Economics.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- F10 - International Economics - - Trade - - - General
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