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Dynamic Quantile Panel Data Models with Interactive Effects

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  • Jia Chen Author-Name-First: Jia

    (Department of Economics and Related Studies, University of York)

  • Yongcheol Shin

    (Department of Economics and Related Studies, University of York)

  • Chaowen Zheng

    (Department of Economics, University of Reading)

Abstract

We propose a simple two-step procedure for estimating the dynamic quantile panel data model with unobserved interactive effects. To account for the endogeneity induced by correlation between factors and lagged dependent variable/regressors, we first estimate factors consistently via an iterative principal component analysis. In the second step, we run a quantile regression for the augmented model with estimated factors and estimate the slope parameters. In particular, we adopt a smoothed quantile regression analysis where the quantile loss function is smoothed to have well-defined derivatives. The proposed two-step estimator is consistent and asymptotically normally distributed, but subject to asymptotic bias due to the incidental parameters. We then apply the split-panel jackknife approach to correct the bias. Monte Carlo simulations confirm that our proposed estimator has good finite sample performance. Finally, we demonstrate the usefulness of our proposed approach with an application to the analysis of bilateral trade for 380 country pairs over 59 years.

Suggested Citation

  • Jia Chen Author-Name-First: Jia & Yongcheol Shin & Chaowen Zheng, 2023. "Dynamic Quantile Panel Data Models with Interactive Effects," Economics Discussion Papers em-dp2023-06, Department of Economics, University of Reading.
    • Handle: RePEc:rdg:emxxdp:em-dp2023-06
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    More about this item

    Keywords

    dynamic quantile panel data model; interactive effects; principal component analysis; smoothed quantile regression; bilateral trade flows;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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