Sequential numerical integration in nonlinear state space models for microeconometric panel data

Florian Heiss
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Florian Heiss: University of Munich, Department of Economics, Ludwigstr. 28 RG, 80539 Munich, Germany, Postal: University of Munich, Department of Economics, Ludwigstr. 28 RG, 80539 Munich, Germany

Journal of Applied Econometrics, 2008, vol. 23, issue 3, pages 373-389

Abstract: This paper discusses the estimation of a class of nonlinear state space models including nonlinear panel data models with autoregressive error components. A health economics example illustrates the usefulness of such models. For the approximation of the likelihood function, nonlinear filtering algorithms developed in the time-series literature are considered. Because of the relatively simple structure of these models, a straightforward algorithm based on sequential Gaussian quadrature is suggested. It performs very well both in the empirical application and a Monte Carlo study for ordered logit and binary probit models with an AR(1) error component. Copyright © 2008 John Wiley & Sons, Ltd.

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