The role of sparsity in panel data models

Andrew Adrian Pua ()

No 2019-07-09, Working Papers from Wang Yanan Institute for Studies in Economics (WISE), Xiamen University

Abstract: Sparsity of the fixed effects means that some fixed effects have absolute value of zero while others are bounded and other are large. The proposed estimator attempts to detect the large values of the fixed effects so that they can be removed in the second step. I tune the regularization parameter to encourage sparsity and allow for contemporaneously exogenous regressors. As a second step, I remove the large non-zero fixed effects so that pooled OLS may be applied.

Date: 2019-07-09
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