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Panel data models with multiple time-varying individual effects

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  • Ahn, Seung C.
  • Lee, Young H.
  • Schmidt, Peter

Abstract

This paper considers a panel data model with time-varying individual effects. The data are assumed to contain a large number of cross-sectional units repeatedly observed over a fixed number of time periods. The model has a feature of the fixed-effects model in that the effects are assumed to be correlated with the regressors. The unobservable individual effects are assumed to have a factor structure. For consistent estimation of the model, it is important to estimate the true number of individual effects. We propose a generalized methods of moments procedure by which both the number of individual effects and the regression coefficients can be consistently estimated. Some important identification issues are also discussed. Our simulation results indicate that the proposed methods produce reliable estimates.

Suggested Citation

  • Ahn, Seung C. & Lee, Young H. & Schmidt, Peter, 2013. "Panel data models with multiple time-varying individual effects," Journal of Econometrics, Elsevier, vol. 174(1), pages 1-14.
  • Handle: RePEc:eee:econom:v:174:y:2013:i:1:p:1-14
    DOI: 10.1016/j.jeconom.2012.12.002
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    More about this item

    Keywords

    Panel data; Time-varying individual effects; Factor models;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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