A Computationally Practical Simulation Estimation Algorithm for Dynamic Panel Data Models with Unobserved Endogenous State Variables

Michael Keane () and Robert Sauer

No 1008, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: This paper develops a simulation estimation algorithm that is particularly useful for estimating dynamic panel data models with unobserved endogenous state variables. The new approach can easily deal with the commonly encountered and widely discussed “initial conditions problem,” as well as the more general problem of missing state variables during the sample period. Repeated sampling experiments on dynamic probit models with serially correlated errors indicate that the estimator has good small sample properties. We apply the estimator to a model of married women’s labor force participation decisions. The results show that the rarely used Polya model, which is very difficult to estimate given missing data problems, fits the data substantially better than the popular Markov model. The Polya model implies far less state dependence in employment status than the Markov model. It also implies that observed heterogeneity in education, young children and husband income are much more important determinants of participation, while race is much less important.

Keywords: Initial Conditions; Missing Data; Simulation; Female Labor Force Participation Decisions (search for similar items in EconPapers)
JEL-codes: C15 C23 C25 J13 J21 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2010-07-05, Revised 2010-07-05
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_1008.pdf First version, 2010 (application/pdf)

Related works:
Journal Article: A COMPUTATIONALLY PRACTICAL SIMULATION ESTIMATION ALGORITHM FOR DYNAMIC PANEL DATA MODELS WITH UNOBSERVED ENDOGENOUS STATE VARIABLES (2010)
Working Paper: A Computationally Practical Simulation Estimation Algorithm for Dynamic Panel Data Models with Unobserved Endogenous State Variables (2009)
Working Paper: A Computationally Practical Simulation Estimation Algorithm for Dynamic Panel Data Models with Unobserved Endogenous State Variables (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:jgu:wpaper:1008

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