A Computationally Practical Simulation Estimation Algorithm for Dynamic Panel Data Models with Unobserved Endogenous State Variables
This paper develops a simulation estimation algorithm that is particularly useful for estimating dynamic panel data models with unobserved endogenous state variables. The new approach can easily deal with the commonly encountered and widely discussed "initial conditions problem," as well as the more general problem of missing state variables during the sample period. Repeated sampling experiments on dynamic probit models with serially correlated errors indicate that the estimator has good small sample properties. We apply the estimator to a model of married women's labor force participation decisions. The results show that the rarely used Polya model, which is very difficult to estimate given missing data problems, fits the data substantially better than the popular Markov model. The Polya model implies far less state dependence in employment status than the Markov model. It also implies that observed heterogeneity in education, young children and husband income are much more important determinants of participation, while race is much less important.
|Date of creation:||Mar 2009|
|Date of revision:|
|Publication status:||published in: International Economic Review, 2010, 51(4), 925-958|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John F. Geweke & Michael P. Keane, 1997.
"An empirical analysis of income dynamics among men in the PSID: 1968-1989,"
233, Federal Reserve Bank of Minneapolis.
- J. Geweke & M. Keane, . "An Empirical Analysis of Income Dynamics among Men in the PSID: 1968–1989," Institute for Research on Poverty Discussion Papers 1127-97, University of Wisconsin Institute for Research on Poverty.
- Arellano, Manuel & Honore, Bo, 2001.
"Panel data models: some recent developments,"
Handbook of Econometrics,
in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 53, pages 3229-3296
- Flinn, C.J., 1993.
"Equilibrium Wage and Dismissal Processes,"
93-38, C.V. Starr Center for Applied Economics, New York University.
- Card, David & Sullivan, Daniel G, 1988.
"Measuring the Effect of Subsidized Training Programs on Movements in and out of Employment,"
Econometric Society, vol. 56(3), pages 497-530, May.
- David Card & Daniel Sullivan, 1987. "Measuring the Effect of Subsidized Training Programs on Movements In andOut of Employment," NBER Working Papers 2173, National Bureau of Economic Research, Inc.
- Daniel A. Ackerberg, 2001.
"A New Use of Importance Sampling to Reduce Computational Burden in Simulation Estimation,"
NBER Technical Working Papers
0273, National Bureau of Economic Research, Inc.
- Daniel Ackerberg, 2009. "A new use of importance sampling to reduce computational burden in simulation estimation," Quantitative Marketing and Economics, Springer, vol. 7(4), pages 343-376, December.
- Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
- Geweke, John & Keane, Michael, 2001. "Computationally intensive methods for integration in econometrics," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 56, pages 3463-3568 Elsevier.
- Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
- Hausman, J. A. & Abrevaya, Jason & Scott-Morton, F. M., 1998. "Misclassification of the dependent variable in a discrete-response setting," Journal of Econometrics, Elsevier, vol. 87(2), pages 239-269, September.
- Poterba, James M & Summers, Lawrence H, 1995. "Unemployment Benefits and Labor Market Transitions: A Multinomial Logit Model with Errors in Classification," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 207-16, May.
- Paul A. Ruud., 1988.
"Extensions of Estimation Methods Using the EM Algorithm.,"
Economics Working Papers
8899, University of California at Berkeley.
- Ruud, Paul A., 1991. "Extensions of estimation methods using the EM algorithm," Journal of Econometrics, Elsevier, vol. 49(3), pages 305-341, September.
- Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
- Lee, Lung-Fei, 1992.
"On Efficiency of Methods of Simulated Moments and Maximum Simulated Likelihood Estimation of Discrete Response Models,"
Cambridge University Press, vol. 8(04), pages 518-552, December.
- Lee, L-F., 1990. "On Efficiency of Methods of Simulated Moments and Maximum Simulated Likelihood Estimation of Discrete Response Models," Papers 260, Minnesota - Center for Economic Research.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4054. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.