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Estimation of a model for matched panel data with high-dimensional two-way unobserved heterogeneity

Øivind Nilsen (), Arvid Raknerud () and Terje Skjerpen ()
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Arvid Raknerud: Statistics Norway, Research Department

Empirical Economics, 2017, vol. 53, issue 4, No 13, 1657-1680

Abstract: Abstract We consider a model for matched data with two types of unobserved effects: a random effect related to the main observational unit and a random or fixed effect related to a secondary unit to which the main unit is matched. In typical applications, e.g., on registry data, there is a curse of dimensionality which we propose to mitigate using an iterative feasible GLS approach on variables subjected to the Helmert transformation. Control functions allow for correlation between the explanatory variables and the random effects. This approach is illustrated by a wage equation with unobserved individual- and firm-specific effects and an endogenous years-of-schooling variable.

Keywords: Matched employer–employee data; Helmert transformation; Random effects; Wage equation; Iterative feasible GLS (search for similar items in EconPapers)
JEL-codes: C23 C81 J31 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00181-016-1179-0

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