On the Estimation of Panel Regression Models with Fixed Effects
AbstractThis paper considers estimation of panel data models with fixed effects. First, we will show that a consistent ``unrestricted fixed effects'' estimator does not exist for autoregressive panel data models with initial conditions. We will derive necessary and sufficient conditions for the consistency of estimators for these models. In particular, we will show that various widely used GMM estimators for the conditional AR(1) panel model are inconsistent under trending fixed effects sequences. Next, we will derive, justify, and compare restricted Fixed Effects GMM and (Q)ML estimators for this model. We find that the FEML estimator is asymptotically efficient, whereas the Modified ML estimator is not. We will also compare the fixed effects approach for estimating the conditional AR(1) panel model and covariance parameters in static panel data models with the correlated random effects approach.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 450.
Date of creation: Jan 2002
Date of revision:
Fixed effects; Correlated effects; (Essentially) random effects; Conditional likelihood; Modified likelihood; GMM; Quasi likelihood; Unit root test; Cross-sectional dependence;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-01-22 (All new papers)
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- Yongfu Huang, 2006.
"Private investment and financial development in a globalized world,"
Bristol Economics Discussion Papers
06/589, Department of Economics, University of Bristol, UK.
- Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, vol. 41(1), pages 43-56, August.
- Hugo Kruiniger, 2006. "Quasi ML Estimation of the Panel AR(1) Model with Arbitrary Initial Conditions," Working Papers 582, Queen Mary, University of London, School of Economics and Finance.
- Hugo Kruiniger, 2006. "GMM Estimation and Inference in Dynamic Panel Data Models with Persistent Data," Working Papers 560, Queen Mary, University of London, School of Economics and Finance.
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