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On the Estimation of Panel Regression Models with Fixed Effects

  • Hugo Kruiniger

    (Queen Mary, University of London)

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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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 450.

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Date of creation: Jan 2002
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Handle: RePEc:qmw:qmwecw:wp450
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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Thomas E. MaCurdy, 1981. "Multiple Time-Serie3 Models Applied to Panel Data," NBER Working Papers 0646, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. 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.
  9. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
  10. 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.
  11. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  12. 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.
  13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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