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Poor identification and estimation problems in panel data models with random effects and autocorrelated errors

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Author Info
Giorgio Calzolari () (University of Firenze)
Laura Magazzini () (Università di Verona, Dipartimento di Scienze economiche (Università di Verona))

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Abstract

A dramatically large number of corner solutions occur when estimating by (Gaussian) maximum likelihood a simple model for panel data with random effects and autocorrelated errors. This can invalidate results of applications to panel data with a short time dimension, even in a correctly specified model. We explain this unpleasant effect (usually underestimated, almost ignored in the literature) showing that the expected log-likelihood is nearly flat, thus rising problems of poor identification.

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File URL: http://dse.univr.it/RePEc/ver/Wpaper/WP53.pdf
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Publisher Info
Paper provided by Università di Verona, Dipartimento di Scienze economiche in its series Working Papers with number 53.

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Length: 15
Date of creation: Jan 2009
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Handle: RePEc:ver:wpaper:53

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Related research
Keywords: panel data; maximum likelihood; identification.;

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Find related papers by JEL classification:
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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  1. Berry, Steve & Gottschalk, Peter & Wissoker, Doug, 1988. "An Error Components Model of the Impact of Plant Closing on Earnings," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 701-07, November. [Downloadable!] (restricted)
  2. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January. [Downloadable!] (restricted)
  3. Sune Karlsson & Jimmy Skoglund, 2004. "Maximum-likelihood based inference in the two-way random effects model with serially correlated time effects," Empirical Economics, Springer, vol. 29(1), pages 79-88, January. [Downloadable!] (restricted)
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  4. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September. [Downloadable!] (restricted)
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