Likelihood approach to dynamic panel models with interactive effects

Jushan Bai

Journal of Econometrics, 2024, vol. 240, issue 1

Abstract: This paper studies dynamic panel models with a factor error structure that is correlated with the regressors. Both short panels (small T) and long panels (large T) are considered. A dynamic panel forms a simultaneous-equation system, and under the factor error structure, there exist constraints between the mean and the covariance matrix. We explore the constraints through a quasi-FIML (full information maximum likelihood) approach. The quasi-FIML approach does not estimate individual effects, even if they are fixed constants, thus circumventing the incidental parameters problem in the cross-sectional dimension.

Keywords: Factor structure; Incidental parameters; Identification; VAR; Efficiency (search for similar items in EconPapers)
Date: 2024
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Working Paper: Likelihood approach to dynamic panel models with interactive effects (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:240:y:2024:i:1:s0304407623003524

DOI: 10.1016/j.jeconom.2023.105636

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