Stein-like Shrinkage Estimation of Panel Data Models with Common Correlated Effects

Tae Hwy Lee, Bai Huang () and Aman Ullah
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Bai Huang: CUFE

No 201905, Working Papers from University of California at Riverside, Department of Economics

Abstract: This paper examines the asymptotic properties of the Stein-type shrinkage combined (averaging) estimation of panel data models. We introduce a combined estimation when the fixed effects (FE) estimator is inconsistent due to endogeneity arising from the correlated common effects in the regression error and regressors. In this case the FE estimator and the CCEP estimator of Pesaran (2006) are combined. This can be viewed as the panel data model version of the shrinkage to combine the OLS and 2SLS estimators as the CCEP estimator is a 2SLS or control function estimator that controls for the endogeneity arising from the correlated common effects. The asymptotic theory, Monte Carlo simulation, and empirical applications are presented. According to our calculation of the asymptotic risk, the Stein-like shrinkage estimator is more efficient estimation than the CCEP estimator.

Keywords: Endogeneity; Panel data; Fixed effect; Common correlated effects; Shrinkage; Model averaging; Local asymptotics; Hausman test. (search for similar items in EconPapers)
JEL-codes: C13 C33 C52 (search for similar items in EconPapers)
Pages: 35 Pages
Date: 2018-09
New Economics Papers: this item is included in nep-ecm and nep-ore
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https://economics.ucr.edu/repec/ucr/wpaper/201905.pdf First version, 2018 (application/pdf)

Related works:
Chapter: Stein-like Shrinkage Estimation of Panel Data Models with Common Correlated Effects (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:201905

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