First-differencing in panel data models with incidental functions

Koen Jochmans

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Abstract: I discuss the fixed-effect estimation of panel data models with time-varying excess heterogeneity across cross-sectional units. These latent components are not given a parametric form. A modification to traditional first-differencing is motivated which, asymptotically, removes the permanent unobserved heterogeneity from the differenced model. Conventional estimation techniques can then be readily applied. Distribution theory for a kernel-weighted GMM estimator under large-n and fixed-T asymptotics is developed. The estimator is put to work in a series of numerical experiments to static and dynamic models.

Keywords: dynamic panel data; GMM; incidental functions; local first- differencing; time-varying fixed effects; nonparametric heterogeneity.; nonparametric heterogeneity (search for similar items in EconPapers)
Date: 2010-10-20
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01069454
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Related works:
Journal Article: First‐differencing in panel data models with incidental functions (2014)
Working Paper: First-differencing in panel data models with incidental functions (2014)
Working Paper: First-differencing in panel data models with incidental functions (2014)
Working Paper: First-differencing in panel data models with incidental functions (2010)
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