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Specification and estimation of random effects models with serial correlation of general form

Author

Listed:
  • Skoglund, Jimmy

    () (Dept. of Economic Statistics, Stockholm School of Economics)

  • Karlsson, Sune

    () (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

This paper is concerned with maximum likelihood based inference in random effects models with serial correlation. Allowing for individual effects we introduce serial correlation of general form in the time effects as well as the idiosyncratic errors. A straightforward maximum likelihood estimator is derived and a coherent model selection strategy is suggested for determining the orders of serial correlation as well as the importance of time and individual effects. The methods are applied to the estimation of a production function for the Japanese chemical industry using a sample of 72 firms observed during 1968-1987. Empirically, our focus is on measuring the returns to scale and technical change for the industry.

Suggested Citation

  • Skoglund, Jimmy & Karlsson, Sune, 2001. "Specification and estimation of random effects models with serial correlation of general form," SSE/EFI Working Paper Series in Economics and Finance 0433, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0433
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    File URL: http://swopec.hhs.se/hastef/papers/hastef0433.pdf
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    Cited by:

    1. Paolo, Foschi, 2005. "Estimating regressions and seemingly unrelated regressions with error component disturbances," MPRA Paper 1424, University Library of Munich, Germany, revised 07 Sep 2006.

    More about this item

    Keywords

    Panel data; serial correlation; random effects;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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