IDEAS home Printed from https://ideas.repec.org/p/ver/wpaper/15-2010.html
   My bibliography  Save this paper

Negative variance estimates in panel data models

Author

Listed:
  • Laura Magazzini

    () (Department of Economics (University of Verona))

  • Giorgio Calzolari

    () (University of Florence)

Abstract

Negative values for estimated variances can arise in a panel data context. Empirical and theoretical literature dismisses the problem as not serious and a practical solution is to replace negative variances by its boundary value, i.e. zero. While this is not a concern when the individual variance components is "small" with respect to idiosyncratic variance component (making it indistinguishable from zero in practice), we claim that a negative estimated variance can also arise with a "large" individual variance component, when the orthogonality condition between the individual effects and regressors fails. Estimation problems are considered in the (feasible) generalized least squares and maximum likelihood frameworks.

Suggested Citation

  • Laura Magazzini & Giorgio Calzolari, 2010. "Negative variance estimates in panel data models," Working Papers 15/2010, University of Verona, Department of Economics.
  • Handle: RePEc:ver:wpaper:15/2010
    as

    Download full text from publisher

    File URL: http://dse.univr.it//workingpapers/WP1510.pdf
    File Function: First version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Berzeg, Korhan, 1979. "The error components model : Conditions for the existence of the maximum likelihood estimates," Journal of Econometrics, Elsevier, vol. 10(1), pages 99-102, April.
    2. Schreiber Sven, 2008. "The Hausman Test Statistic can be Negative even Asymptotically," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(4), pages 394-405, August.
    3. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
    4. Maddala, G S, 1971. "The Use of Variance Components Models in Pooling Cross Section and Time Series Data," Econometrica, Econometric Society, vol. 39(2), pages 341-358, March.
    5. Swamy, P A V B & Arora, S S, 1972. "The Exact Finite Sample Properties of the Estimators of Coefficients in the Error Components Regression Models," Econometrica, Econometric Society, vol. 40(2), pages 261-275, March.
    6. Amemiya, Takeshi, 1971. "The Estimation of the Variances in a Variance-Components Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(1), pages 1-13, February.
    7. Wallace, T D & Hussain, Ashiq, 1969. "The Use of Error Components Models in Combining Cross Section with Time Series Data," Econometrica, Econometric Society, vol. 37(1), pages 55-72, January.
    8. Fuller, Wayne A. & Battese, George E., 1974. "Estimation of linear models with crossed-error structure," Journal of Econometrics, Elsevier, vol. 2(1), pages 67-78, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Panel data; random effect estimation; negative variances; maximum likelihood;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ver:wpaper:15/2010. 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: (Michael Reiter). General contact details of provider: http://edirc.repec.org/data/isverit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.