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Estimation and Inference in Panel Structure Models

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Listed author(s):
  • Sun, Yixiao X

Abstract

This paper proposes and implements a tractable approach to detect group structure in panel data. The mechanism works by means of a panel structure model, which assumes that individuals form a number of homogeneous groups in a heterogeneous population. Within each group, the (linear) regression coe¢ cients are the same, while they may be different across different groups. The econometrician is not presumed to know the group structure. Instead, a multinomial logistic regression is used to infer which individuals belong to which groups. The model is estimated via maximum likelihood. We prove the consistency and asymptotic normality of a global MLE under the mild assumption that the time dimension is larger than the number of regressors in the linear regression. We propose a likelihood ratio test to test the null of one group against the alternative of multiple groups. Simulation studies show that the MLE performs quite well and the likelihood ratio test has good size and power properties in finite samples.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt5tf1231k.

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Date of creation: 01 Oct 2005
Handle: RePEc:cdl:ucsdec:qt5tf1231k
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Keywords: dynamic panel data model; group structure; logistic regression; nonregular test; parameter heterogeneity;

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  1. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
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  3. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  4. Lee, Kevin & Pesaran, M Hashem & Smith, Ron, 1997. "Growth and Convergence in Multi-country Empirical Stochastic Solow Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 357-392, July-Aug..
  5. Christophe Deissenberg, Gustav Feichtinger, Willi Semmler and Franz Wirl, 2001. "History Dependence and Global Dynamics in Models with Multiple Equilibria," Computing in Economics and Finance 2001 257, Society for Computational Economics.
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  7. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  8. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  9. Kevin Lee & M. Hashem Pesaran & Ron Smith, 1998. "Growth Empirics: A Panel Data Approach—A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 319-323.
  10. Timothy G. Conley & Bill Dupor, 2003. "A Spatial Analysis of Sectoral Complementarity," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 311-352, April.
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  12. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  13. Andrews, Donald W K, 2001. "Testing When a Parameter Is on the Boundary of the Maintained Hypothesis," Econometrica, Econometric Society, vol. 69(3), pages 683-734, May.
  14. Haque, N. U. & Pesaran, M. H. & Sharma, Sunil, 1999. "Neglected Heterogeneity and Dynamics in Cross-country Savings Regressions," Cambridge Working Papers in Economics 9904, Faculty of Economics, University of Cambridge.
  15. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  16. Nazrul Islam, 1998. "Growth Empirics: A Panel Data Approach—A Reply," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 325-329.
  17. Baltagi, Badi H. & Griffin, James M., 1997. "Pooled estimators vs. their heterogeneous counterparts in the context of dynamic demand for gasoline," Journal of Econometrics, Elsevier, vol. 77(2), pages 303-327, April.
  18. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
  19. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
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Cited by:

  1. Andrew Grodner & Thomas Kniesner, 2005. "Labor Supply with Social Interactions: Econometric Estimates and Their Tax Policy Implications," Center for Policy Research Working Papers 69, Center for Policy Research, Maxwell School, Syracuse University.
  2. Tomohiro Ando & Jushan Bai, 2016. "Panel Data Models with Grouped Factor Structure Under Unknown Group Membership," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(1), pages 163-191, 01.
  3. Bester, C. Alan & Hansen, Christian B., 2016. "Grouped effects estimators in fixed effects models," Journal of Econometrics, Elsevier, vol. 190(1), pages 197-208.

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