The specification of dynamic discrete-time two-state panel data models

Tue Gørgens () and Dean Hyslop
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Tue Gørgens: Australian National University

No 16_01, Working Papers from Motu Economic and Public Policy Research

Abstract: This paper examines dynamic binary response and multi-spell duration model approaches to analyzing longitudinal discrete-time binary outcomes. Prototypical dynamic binary response models specify low-order Markovian state dependence and restrict the effects of observed and unobserved heterogeneity on the probability of transitioning into and out of a state to have the same magnitude and opposite signs. In contrast, multi-spell duration models typically allow for state-specific duration dependence, and allow the probability of entry into and exit from a state to vary flexibly. We show that both of these approaches are special cases within a general framework. We compare specific dynamic binary response and multi-spell duration models empirically using a case study of poverty transitions. In this example, both the specification of state dependence and the restrictions on the state-specific transition probabilities imposed by the simpler dynamic binary response models are severely rejected against the more flexible multi-spell duration models. Consistent with recent literature, we conclude that the standard dynamic binary response model is unacceptably restrictive in this context.

Keywords: Panel data; transition data; binary response; duration analysis; event history analysis; initial conditions; random effects. (search for similar items in EconPapers)
JEL-codes: C33 C35 C41 C51 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2016-02
New Economics Papers: this item is included in nep-ecm
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https://motu-www.motu.org.nz/wpapers/16_01.pdf

Related works:
Journal Article: The Specification of Dynamic Discrete-Time Two-State Panel Data Models (2018)
Working Paper: The specification of dynamic discrete-time two-state panel data models (2016)
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