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Panel Data Models with Multiple Time-Varying Individual Effects

  • Seung C. Ahn

    ()

    (Dept. of Economics, W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287)

  • Young H. Lee

    (Hansung University)

  • Peter Schmidt

    (Michigan State University)

This paper considers a panel data model with time-varying individual effects. The data are assumed to contain a large number of cross-sectional units repeatedly observed over a fixed number of time periods. The model has a feature of the fixed-effects model in that the effects are assumed to be correlated with the regressors. The unobservable individual effects are assumed to have a factor structure. For consistent estimation of the model, it is important to estimate the true number of factors. We propose a generalized methods of moments procedure by which both the number of factors and the regression coefficients can be consistently estimated. Some important identification issues are also discussed. Our simulation results indicate that the proposed methods produce reliable estimates.

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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0702.

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Length: 43 pages
Date of creation: 00 Oct 2006
Date of revision:
Handle: RePEc:crt:wpaper:0702
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