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Panel models with interactive effects

Cheng Hsiao

Journal of Econometrics, 2018, vol. 206, issue 2, 645-673

Abstract: The multiplication of individual specific effects, ▪ and time-specific effects, ▪ provides a more general formulation than the traditionally used additive form to capture the unobserved heterogeneity in panel data modeling. It is also a useful approach for dimension reduction for modeling cross-section dependence. However, ▪ and ▪ are unobservable. We explore the implications for econometric modeling under various formulations of the interactive effects models and suggest a quasi-likelihood approach as a common framework to study issues of estimation and statistical inference when regressors are either strictly exogenous or predetermined and under different combinations of the data size of cross-sectional dimension, N, and time series dimensions, T. We also suggest some computationally simpler estimation methods in light of the quasi-likelihood approach. Monte Carlo studies are conducted to highlight the issues involved.

Keywords: Interactive effects; Static and dynamic models; Initial observations; Asymptotic bias (search for similar items in EconPapers)
JEL-codes: C01 C13 C23 (search for similar items in EconPapers)
Date: 2018
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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Handle: RePEc:eee:econom:v:206:y:2018:i:2:p:645-673