Efficiency of QMLE for dynamic panel data models with interactive effects

Jushan Bai

Papers from arXiv.org

Abstract: This paper studies the problem of efficient estimation of panel data models in the presence of an increasing number of incidental parameters. We formulate the dynamic panel as a simultaneous equations system, and derive the efficiency bound under the normality assumption. We then show that the Gaussian quasi-maximum likelihood estimator (QMLE) applied to the system achieves the normality efficiency bound without the normality assumption. Comparison of QMLE with the fixed effects approach is made.

Date: 2023-12, Revised 2025-06
New Economics Papers: this item is included in nep-ecm
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