Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity

Hyungsik Roger Moon, Frank Schorfheide and Boyuan Zhang

No 18560, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We incorporate a version of a spike and slab prior, comprising a pointmass at zero ("spike") and a Normal distribution around zero ("slab") into a dynamic panel data framework to model coefficient heterogeneity. In addition to homogeneity and full heterogeneity, our specification can also capture sparse heterogeneity, that is, there is a core group of units that share common parameters and a set of deviators with idiosyncratic parameters. We fit a model with unobserved components to income data from the Panel Study of Income Dynamics. We find evidence for sparse heterogeneity for balanced panels composed of individuals with long employment histories.

Keywords: Forecasting; Sparsity (search for similar items in EconPapers)
JEL-codes: C11 C23 C53 E20 (search for similar items in EconPapers)
Date: 2023-10
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