Maximum Likelihood Estimation of Dynamic Linear Panel Data Models with Fixed Effects
AbstractIn this paper we consider inference procedures for two types of dynamic linear panel data models with fixed effects. First, we show that the closure of the stationary ARMA panel model with fixed effects can be consistently estimated by the First Difference Maximum Likelihood Estimator and we derive its large N, fixed T, as well as its large T, arbitrary N asymptotic distributions. These results allow us to formulate two simple likelihood based unit root tests which use the table of the standard normal distribution. We also establish the asymptotic properties of the Modified ML Estimator for the conditional AR(1) panel model with fixed effects under various asymptotic plans. Then we show that when N tends to infinity but T is fixed, the FDMLE does not attain the (generalised) Cramer-Rao lowerbound for the stationary AR(1) panel model with fixed effects and is asymptotically less efficient than the Random Effects MLE. However, when T tends to infinity, the FDMLE, the Fixed Effects MLE, the REMLE are asymptotically equivalent to the Modified MLE and the Within ML (or LSDV) Estimator, i.e. under normality some of the moment conditions implicitly exploited by the first three estimators become asymptotically redundant.
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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 458.
Date of creation: Jun 2002
Date of revision:
Dynamic panel data models; Fixed effects; Maximum Likelihood; GMM; Modified ML; Bayesian methods; Redundancy; Cramer-Rao and Fisher efficiency bounds; Unit root test;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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- 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.
- Gareth M. Thomas & Seung C. Ahn, 2004. "Likelihood Based Inference for amic Panel Data Models," Econometric Society 2004 Far Eastern Meetings 669, Econometric Society.
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