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An Exponential Class of Dynamic Binary Choice Panel Data Models with Fixed Effects

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Author Info

  • Al-Sadoon, Majid M.

    ()
    (Universitat Pompeu Fabra)

  • Li, Tong

    ()
    (Vanderbilt University)

  • Pesaran, M. Hashem

    ()
    (University of Cambridge)

Abstract

This paper develops a model for dynamic binary choice panel data that allows for unobserved heterogeneity to be arbitrarily correlated with covariates. The model is of the exponential type. We derive moment conditions that enable us to eliminate the unobserved heterogeneity term and at the same time to identify the parameters of the model. We then propose GMM estimators that are consistent and asymptotically normally distributed at the root-N rate. We also study the conditional likelihood approach, which can only identify the effect of state dependence in our case. Monte Carlo experiments demonstrate the finite sample performance of our GMM estimators.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7054.

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Length: 52 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:iza:izadps:dp7054

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Related research

Keywords: dynamic discrete choice; fixed effects; panel data; initial values; GMM; CMLE;

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References

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  1. Magnac, Thierry, 2000. "Subsidised Training and Youth Employment: Distinguishing Unobserved Heterogeneity from State Dependence in Labour Market Histories," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(466), pages 805-37, October.
  2. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  3. Arellano, Manuel & Carrasco, Raquel, 2003. "Binary choice panel data models with predetermined variables," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 125-157, July.
  4. Thierry Magnac, 2003. "Panel Binary Variables and Sufficiency: Generalizing Conditional Logit," Research Unit Working Papers, Laboratoire d'Economie Appliquee, INRA 0308, Laboratoire d'Economie Appliquee, INRA.
  5. Pesaran, M.H. & Timmermann, A., 2006. "Testing Dependence Among Serially Correlated Multi-category Variables," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0648, Faculty of Economics, University of Cambridge.
  6. Gary Chamberlain, 2010. "Binary Response Models for Panel Data: Identification and Information," Econometrica, Econometric Society, Econometric Society, vol. 78(1), pages 159-168, 01.
  7. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers, Center for Global Development 125, Center for Global Development.
  8. Carro, Jesus M., 2007. "Estimating dynamic panel data discrete choice models with fixed effects," Journal of Econometrics, Elsevier, Elsevier, vol. 140(2), pages 503-528, October.
  9. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  10. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  11. Francesco Bartolucci & Valentina Nigro, 2010. "A Dynamic Model for Binary Panel Data With Unobserved Heterogeneity Admitting a √n-Consistent Conditional Estimator," Econometrica, Econometric Society, Econometric Society, vol. 78(2), pages 719-733, 03.
  12. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
  13. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 18(1), pages 47-82, January.
  14. Bo Honoré, 2002. "Nonlinear Models with Panel Data," CAM Working Papers 2002-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  15. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, Econometric Society, vol. 68(4), pages 839-874, July.
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Cited by:
  1. Yoshitsugu Kitazawa, 2013. "Exploration of dynamic fixed effects logit models from a traditional angle," Discussion Papers, Kyushu Sangyo University, Faculty of Economics 60, Kyushu Sangyo University, Faculty of Economics.

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