Specification Of Variance Matrices For Panel Data Models
Many regression models have two dimensions, say time ( t = 1,…, T ) and households ( i = 1,…, N ), as in panel data, error components, or spatial econometrics. In estimating such models we need to specify the structure of the error variance matrix Ω , which is of dimension T N × T N . If T N is large, then direct computation of the determinant and inverse of Ω is not practical. In this note we define structures of Ω that allow the computation of its determinant and inverse, only using matrices of orders T and N , and at the same time allowing for heteroskedasticity, for household- or station-specific autocorrelation, and for time-specific spatial correlation.
Volume (Year): 26 (2010)
Issue (Month): 01 (February)
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