Shrinkage estimation of the varying-coefficient model with continuous and categorical covariates

Xiaoyi Han, Bin Peng, Yanrong Yang and Huanjun Zhu

Economics Letters, 2021, vol. 202, issue C

Abstract: This paper studies shrinkage estimation of a general varying-coefficient model in Li and Racine (2010), with both continuous and categorical covariates. We propose a kernel least absolute shrinkage and selection operator (KLASSO) to implement estimation and variable selection for the model. We establish the estimation sparsity and oracle efficiency of the KLASSO estimator. We also provide a BIC-type criterion for tuning parameter selection and justify the model selection consistency. Simulation results suggest our method has a nice performance in terms of estimation errors and variable selection.

Keywords: Variable selection; Varying-coefficient model; Least absolute shrinkage and selection operator; Asymptotic theory (search for similar items in EconPapers)
JEL-codes: C13 C14 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:202:y:2021:i:c:s0165176521000963

DOI: 10.1016/j.econlet.2021.109819

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