Dynamic binary outcome models with maximal heterogeneity
AbstractMost econometric schemes to allow for heterogeneity in micro behaviour have two drawbacks: they do not fit the data and they rule out interesting economic models.� In this paper we consider the time homogeneous first order Markov (HFOM) model that allows for maximal heterogeneity.� That is, the modelling of the heterogeneity does not impose anything on the data (except the HFOM assumption for each agent) and it allows for any theory model (that gives a HFOM process for an individual observable variable).� 'Maximal' means that the joint distribution of initial values and the transition probabilities is unrestricted.� We establish necessary and sufficient conditions for the point identification of our heterogeneity structure and show how it depends on the length of the panel.� A feasible ML estimation procedure is developed.� Tests for a variety of subsidiary hypotheses such as the assumption that marginal dynamic effects are homogeneous are developed.� We apply our techniques to a long panel of Danish workers who are very homogeneous in terms of observables.� We show that individual unemployment dynamics are very heterogeneous, even for such a homogeneous group.� We also show that the impact of cyclical variables on individual unemployment probabilities differs widely across workers.� Some workers have unemployment dynamics that are independent of the cycle whereas others are highly sensitive to macro shocks.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 426.
Date of creation: 01 Apr 2009
Date of revision:
Discrete choice; Markov processes; Nonparametric identification; Unemployment dynamics;
Other versions of this item:
- Martin Browning & Jesus M. Carro, 2007. "Dynamic Binary Outcome Models with Maximal Heterogeneity," CAM Working Papers 2009-08, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics, revised Feb 2009.
- Browning, Martin & Carro, Jesús M., . "Dynamic binary outcome models with maximal heterogeneity," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3802, Universidad Carlos III de Madrid.
- Martin Browning & Jesus M. Carro, 2009. "Dynamic binary outcome models with maximal heterogeneity," Economics Working Papers we091710, Universidad Carlos III, Departamento de Economía.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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