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Maximum Likelihood Estimation in Panels with Incidental Trends

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  • Hyungsik R. Moon
  • Peter C. B. Phillip

Abstract

It is shown that the maximum likelihood estimator of a local to unity parameter can be consistently estimated with panel data when the cross‐section observations are independent. Consistency applies when there are no deterministic trends or when there is a homogeneous deterministic trend in the panel model. When there are heterogeneous deterministic trends the panel MLE of the local to unity parameter is inconsistent. This outcome provides a new instance of inconsistent ML estimation in dynamic panels, and, unlike earlier results of this type, applies when both T→∞ and N→∞.

Suggested Citation

  • Hyungsik R. Moon & Peter C. B. Phillip, 1999. "Maximum Likelihood Estimation in Panels with Incidental Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 711-747, November.
    • Handle: RePEc:bla:obuest:v:61:y:1999:i:s1:p:711-747
    DOI: 10.1111/1468-0084.0610s1711
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    Cited by:

    1. Olegs Tkacevs, 2020. "Secular Decline in Public Investment: are National Fiscal Rules to Blame?," Working Papers 2020/04, Latvijas Banka.
    2. Joakim Westerlund & Milda Norkutė & Ovidijus Stauskas, 2022. "The factor analytical approach in trending near unit root panels," Journal of Time Series Analysis, Wiley Blackwell, vol. 43(3), pages 501-508, May.
    3. Joakim Westerlund, 2015. "Rethinking the Univariate Approach to Panel Unit Root Testing: Using Covariates to Resolve the Incidental Trend Problem," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(3), pages 430-443, July.

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