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Mean group instrumental variable estimation of time-varying large heterogeneous panels with endogenous regressors

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  • Bai, Yu
  • Marcellino, Massimiliano
  • Kapetanios, George

Abstract

The large heterogeneous panel data models are extended to the setting where the heterogenous coefficients are changing over time and the regressors are endogenous. Kernel-based non-parametric time-varying parameter instrumental variable mean group (TVP-IV-MG) estimator is proposed for the time-varying cross-sectional mean coefficients. The uniform consistency is shown and the pointwise asymptotic normality of the proposed estimator is derived. A data-driven bandwidth selection procedure is also proposed. The finite sample performance of the proposed estimator is investigated through a Monte Carlo study and an empirical application on multi-country Phillips curve with time-varying parameters.

Suggested Citation

  • Bai, Yu & Marcellino, Massimiliano & Kapetanios, George, 2026. "Mean group instrumental variable estimation of time-varying large heterogeneous panels with endogenous regressors," Econometrics and Statistics, Elsevier, vol. 37(C), pages 26-41.
    • Handle: RePEc:eee:ecosta:v:37:y:2026:i:c:p:26-41
    DOI: 10.1016/j.ecosta.2023.06.004
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    Keywords

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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