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On the Estimation of Panel Regression Models with Fixed Effects

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Author Info
Hugo Kruiniger () (Queen Mary, University of London)

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Abstract

This 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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Publisher Info
Paper provided by Queen Mary, University of London, Department of Economics in its series Working Papers with number 450.

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Date of creation: Jan 2002
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Handle: RePEc:qmw:qmwecw:wp450

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Related research
Keywords: Fixed effects Correlated effects (Essentially) random effects Conditional likelihood Modified likelihood GMM Quasi likelihood Unit root test Cross-sectional dependence

Other versions of this item:

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Ahn, Seung C. & Schmidt, Peter, 1997. "Efficient estimation of dynamic panel data models: Alternative assumptions and simplified estimation," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 309-321. [Downloadable!] (restricted)
  3. Thomas E. MaCurdy, 1981. "Multiple Time-Series Models Applied to Panel Data," NBER Working Papers 0646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January. [Downloadable!] (restricted)
  5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July. [Downloadable!] (restricted)
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  6. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 225-38, January. [Downloadable!] (restricted)
  7. Thomas E. MaCurdy, 1981. "Asymptotic Properties of Quasi-Maximum Likelihood Estimators and Test Statistics," NBER Technical Working Papers 0014, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
  9. Hugo Kruiniger, 2000. "GMM Estimation of Dynamic Panel Data Models with Persistent Data," Working Papers 428, Queen Mary, University of London, Department of Economics. [Downloadable!]
  10. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July. [Downloadable!] (restricted)
  11. Sims, Christopher A., 2000. "Using a likelihood perspective to sharpen econometric discourse: Three examples," Journal of Econometrics, Elsevier, vol. 95(2), pages 443-462, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gareth M. Thomas & Seung C. Ahn, 2004. "Likelihood Based Inference for amic Panel Data Models," Econometric Society 2004 Far Eastern Meetings 669, Econometric Society. [Downloadable!]
  2. Steve Bond & Céline Nauges & Frank Windmeijer, 2005. "Unit roots: identification and testing in micro panels," CeMMAP working papers CWP07/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
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