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Random Coefficient models for time-series-cross-section data

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  • Nathaniel Beck, Jonathan N. Katz

Abstract

This paper considers random coefficient models (RCMs) for time-series-cross-section data. These models allow for unit to unit variation in the model parameters. After laying out the various models, we assess several issues in specifying RCMs. We then consider the finite sample properties of some standard RCM estimators, and show that the most common one, associated with Hsiao, has very poor properties. These analyses also show that a somewhat awkward combination of estimators based on Swamy's work performs reasonably well; this awkward estimator and a Bayes estimator with an uninformative prior (due to Smith) seem to perform best. But we also see that estimators which assume full pooling perform well unless there is a large degree of unit to unit parameter heterogeneity. We also argue that the various data drive methods (whether classical or empirical Bayes or Bayes with gentle priors) tends to lead to much more heterogeneity than most political scientists would like. We speculate that fully Bayesian models, with a variety of informative priors, may be the best way to approach RCMs.

Suggested Citation

  • Nathaniel Beck, Jonathan N. Katz, 2004. "Random Coefficient models for time-series-cross-section data," Working Papers 1205, California Institute of Technology, Division of the Humanities and Social Sciences.
  • Handle: RePEc:clt:sswopa:1205
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    File URL: http://www.hss.caltech.edu/SSPapers/wp1205.pdf
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    1. Michaël Zemmour, 2012. "Tax competition and the move from insurance to assistance," Documents de travail du Centre d'Economie de la Sorbonne 12090r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2013.
    2. Yuli Radev, 2012. "Empirical Analysis of Demand of Natural Gas by Households in Europe," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 154-183.
    3. Amable, Bruno & Demmou, Lilas & Gatti, Donatella, 2007. "Employment Performance and Institutions: New Answers to an Old Question," IZA Discussion Papers 2731, Institute for the Study of Labor (IZA).
    4. Uta Brehm & Henriette Engelhardt-Wölfler, 2015. "On the age-specific correlation between fertility and female employment," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 32(23), pages 691-722, March.
    5. Kittel, Bernhard & Winner, Hannes, 2002. "How reliable is pooled analysis in political economy? The globalization welfare state nexus revisited," MPIfG Discussion Paper 02/3, Max Planck Institute for the Study of Societies.
    6. Christian Aßmann & Jens Boysen-Hogrefe & Nils Jannsen, 2013. "Costs Of Housing Crises: International Evidence," Bulletin of Economic Research, Wiley Blackwell, vol. 65(4), pages 299-313, October.
    7. Mejra Festić & Sebastijan Repina & Alenka Kavkler, 2009. "The overheating of five EU new member states and cyclicality of systemic risk in the banking sector," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 219-232, May.
    8. Massón Guerra, José Luis, 2007. "El capital empresarial como determinante de la productividad y el crecimiento en España
      [The Impact of Entrepreneurship Capital on Spanish's Labor Productivity and Economic Growth]
      ," MPRA Paper 4073, University Library of Munich, Germany.
    9. Dressler, Jonathan B. & Tauer, Loren W., 2011. "Revealing an Equitable Income Allocation among Dairy Farm Partnerships," Working Papers 126542, Cornell University, Department of Applied Economics and Management.
    10. Dressler, Jonathan B. & Tauer, Loren W., 2012. "An Estimate of Socioemotional Wealth in the Family Business," Working Papers 128814, Cornell University, Department of Applied Economics and Management.
    11. Bruno Amable & Lilas Demmou & Donatella Gatti, 2006. "Institutions, unemployment and inactivity in the OECD countries," PSE Working Papers halshs-00590495, HAL.
    12. Zouhair MRABET & Lanouar CHARFEDDINE, 2013. "Trade Liberalization, Technology Import And Employment: Evidence Of Skill Upgrading In The Tunisian Context," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 37, pages 11-36.
    13. Boris Branisa & Adriana Cardozo, 2009. "Revisiting the Regional Growth Convergence Debate in Colombia Using Income Indicators," Ibero America Institute for Econ. Research (IAI) Discussion Papers 194, Ibero-America Institute for Economic Research, revised 21 Aug 2009.
    14. Bruno Amable & Lilas Demmou & Donatella Gatti, 2006. "Institutions, unemployment and inactivity in the OECD countries," Working Papers halshs-00590495, HAL.
    15. Festic, Mejra & Krizanic, France, 2011. "The Introduction of the Common Currency in Slovenia," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 88-105, March.

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