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Trimmed Mean Group Estimation of Average Treatment Effects in Ultra Short T Panels under Correlated Heterogeneity

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  • M. Hashem Pesaran
  • Liying Yang

Abstract

Under correlated heterogeneity, the commonly used two-way fixed effects estimator is biased and can lead to misleading inference. This paper proposes a new trimmed mean group (TMG) estimator which is consistent at the irregular rate of n 1/3 even if the time dimension of the panel is as small as the number of its regressors. Extensions to panels with time effects are provided, and a Hausman-type test of correlated heterogeneity is proposed. Small sample properties of the TMG estimator (with and without time effects) are investigated by Monte Carlo experiments and shown to be satisfactory and perform better than other trimmed estimators proposed in the literature. The proposed test of correlated heterogeneity is also shown to have the correct size and satisfactory power. The utility of the TMG approach is illustrated with an empirical application.

Suggested Citation

  • M. Hashem Pesaran & Liying Yang, 2023. "Trimmed Mean Group Estimation of Average Treatment Effects in Ultra Short T Panels under Correlated Heterogeneity," CESifo Working Paper Series 10725, CESifo.
    • Handle: RePEc:ces:ceswps:_10725
    as

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    References listed on IDEAS

    as
    1. Yuya Sasaki & Takuya Ura, 2021. "Slow Movers in Panel Data," Papers 2110.12041, arXiv.org.
    2. Bryan S. Graham & James L. Powell, 2012. "Identification and Estimation of Average Partial Effects in “Irregular” Correlated Random Coefficient Panel Data Models," Econometrica, Econometric Society, vol. 80(5), pages 2105-2152, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    correlated heterogeneity; irregular estimators; two-way fixed effects; FE-TE; tests of correlated heterogeneity; calorie demand;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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