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Maximum Likelihood Estimation of Dynamic Linear Panel Data Models with Fixed Effects

Author

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  • Hugo Kruiniger

    (Queen Mary, University of London)

Abstract

In this paper we consider inference procedures for two types of dynamic linear panel data models with fixed effects. First, we show that the closure of the stationary ARMA panel model with fixed effects can be consistently estimated by the First Difference Maximum Likelihood Estimator and we derive its large N, fixed T, as well as its large T, arbitrary N asymptotic distributions. These results allow us to formulate two simple likelihood based unit root tests which use the table of the standard normal distribution. We also establish the asymptotic properties of the Modified ML Estimator for the conditional AR(1) panel model with fixed effects under various asymptotic plans. Then we show that when N tends to infinity but T is fixed, the FDMLE does not attain the (generalised) Cramer-Rao lowerbound for the stationary AR(1) panel model with fixed effects and is asymptotically less efficient than the Random Effects MLE. However, when T tends to infinity, the FDMLE, the Fixed Effects MLE, the REMLE are asymptotically equivalent to the Modified MLE and the Within ML (or LSDV) Estimator, i.e. under normality some of the moment conditions implicitly exploited by the first three estimators become asymptotically redundant.

Suggested Citation

  • Hugo Kruiniger, 2002. "Maximum Likelihood Estimation of Dynamic Linear Panel Data Models with Fixed Effects," Working Papers 458, Queen Mary University of London, School of Economics and Finance.
  • Handle: RePEc:qmw:qmwecw:wp458
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    File URL: http://www.econ.qmul.ac.uk/media/econ/research/workingpapers/archive/wp458.pdf
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    Cited by:

    1. Gareth M. Thomas & Seung C. Ahn, 2004. "Likelihood Based Inference for amic Panel Data Models," Econometric Society 2004 Far Eastern Meetings 669, Econometric Society.
    2. Stephen Bond & CĂ©line Nauges & Frank Windmeijer, 2005. "Unit roots: identification and testing in micro panels," CeMMAP working papers CWP07/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

    More about this item

    Keywords

    Dynamic panel data models; Fixed effects; Maximum Likelihood; GMM; Modified ML; Bayesian methods; Redundancy; Cramer-Rao and Fisher efficiency bounds; Unit root test;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • 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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