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On the estimation of panel regression models with fixed effects

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  • Hugo Kruiniger

    () (Department of Economics, Queen Mary, University of London)

Abstract

This paper considers estimation of panel data models with fixed effects. First, we will show that a consistent ``unrestricted fixed effects'' estimator does not exist for autoregressive panel data models with initial conditions. We will derive necessary and sufficient conditions for the consistency of estimators for these models. In particular, we will show that various widely used GMM estimators for the conditional AR(1) panel model are inconsistent under trending fixed effects sequences. Next, we will derive, justify, and compare restricted Fixed Effects GMM and (Q)ML estimators for this model. We find that the FEML estimator is asymptotically efficient, whereas the Modified ML estimator is not. We will also compare the fixed effects approach for estimating the conditional AR(1) panel model and covariance parameters in static panel data models with the correlated random effects approach.
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Suggested Citation

  • Hugo Kruiniger, 2002. "On the estimation of panel regression models with fixed effects," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C6-2, International Conferences on Panel Data.
  • Handle: RePEc:cpd:pd2002:c6-2
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    References listed on IDEAS

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    1. Thomas E. MaCurdy, 1981. "Multiple Time-Serie3 Models Applied to Panel Data," NBER Working Papers 0646, National Bureau of Economic Research, Inc.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Sims, Christopher A., 2000. "Using a likelihood perspective to sharpen econometric discourse: Three examples," Journal of Econometrics, Elsevier, vol. 95(2), pages 443-462, April.
    4. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    5. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    6. Newey, Whitney K. & McFadden, Daniel, 1986. "Large sample estimation and hypothesis testing," Handbook of Econometrics,in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 36, pages 2111-2245 Elsevier.
    7. Ahn, Seung C. & Schmidt, Peter, 1997. "Efficient estimation of dynamic panel data models: Alternative assumptions and simplified estimation," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 309-321.
    8. Thomas E. MaCurdy, 1981. "Asymptotic Properties of Quasi-Maximum Likelihood Estimators and Test Statistics," NBER Technical Working Papers 0014, National Bureau of Economic Research, Inc.
    9. Hugo Kruiniger, 2000. "GMM Estimation of Dynamic Panel Data Models with Persistent Data," Working Papers 428, Queen Mary University of London, School of Economics and Finance.
    10. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    12. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
    13. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
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    Citations

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    Cited by:

    1. Kruiniger, Hugo, 2013. "Quasi ML estimation of the panel AR(1) model with arbitrary initial conditions," Journal of Econometrics, Elsevier, vol. 173(2), pages 175-188.
    2. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, pages 43-56.
    3. Kruiniger, Hugo, 2009. "Gmm Estimation And Inference In Dynamic Panel Data Models With Persistent Data," Econometric Theory, Cambridge University Press, vol. 25(05), pages 1348-1391, October.
    4. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, pages 43-56.
    5. John Chao & Norman Swanson, 2004. "Estimation and Testing Using Jackknife IV in Heteroskedastic Regressions With Many Weak Instruments," Departmental Working Papers 200420, Rutgers University, Department of Economics.
    6. Arturas Juodis, 2013. "First Difference Transformation in Panel VAR models: Robustness, Estimation and Inference," UvA-Econometrics Working Papers 13-06, Universiteit van Amsterdam, Dept. of Econometrics.
    7. Klein, Roger & Vella, Francis, 2010. "Estimating a class of triangular simultaneous equations models without exclusion restrictions," Journal of Econometrics, Elsevier, pages 154-164.

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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