Nonparametric Instrumental Regression with Two-Way Fixed Effects

Enrico De Monte ()
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Enrico De Monte: ZEW-Leibniz-Centre for European Economic Research, L7 1, 68161 Mannheim, Germany

Journal of Econometric Methods, 2024, vol. 13, issue 1, 49-66

Abstract: This paper proposes a novel estimator for nonparametric instrumental regression while controlling for additive two-way fixed effects. In particular, the Landweber–Fridman regularization, to overcome the ill-posed inverse problem in the nonparametric instrumental regression procedure, is combined with the local-within two-ways fixed effect estimator presented by Lee, Y., D. Mukherjee, and A. Ullah. (2019. “Nonparametric Estimation of the Marginal Effect in Fixed-Effect Panel Data Models.” Journal of Multivariate Analysis 171: 53–67). Compared to other estimators in this context, an appealing feature is its flexible applicability with respect to different panel model specifications, i.e. models comprising either individual, temporal, or two-way fixed effects. The estimator’s performance is tested on simulated data, where a Monte Carlo study reveals good finite sample behaviour. Confidence intervals are provided by applying the wild bootstrap.

Keywords: endogeneity; panel data; unobserved heterogeneity; regularization; kernel regression (search for similar items in EconPapers)
JEL-codes: C01 C14 C23 C3 C33 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/jem-2022-0025

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