A Nonlinear Panel Data Model of Cross-sectional Dependence

James Mitchell

No 370, National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research

Abstract: This paper proposes a nonlinear panel data model which can generate endogenously both 'weak' and 'strong' cross‐sectional dependence. The model's distinguishing characteristic is that a given agent's behaviour is influenced by an aggregation of the views or actions of those around them. The model allows for considerable flexibility in terms of the genesis of this herding or clustering type behaviour. At an econometric level, the model is shown to nest various extant dynamic panel data models. These include panel AR models, spatial models, which accommodate weak dependence only, and panel models where cross‐sectional averages or factors exogenously generate strong, but not weak, cross sectional dependence. An important implication is that the appropriate model for the aggregate series becomes intrinsically nonlinear, due to the clustering behaviour, and thus requires the disaggregates to be simultaneously considered with the aggregate. We provide the associated asymptotic theory for estimation and inference. This is supplemented with Monte Carlo studies and two empirical applications which indicate the utility of our proposed model as both a structural and reduced form vehicle to model different types of cross‐sectional dependence, including evolving clusters.

Date: 2010-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://niesr.ac.uk/wp-content/uploads/2010/11/DP3 ... NfcAGHzViqdRNaxkOrF5

Related works:
Journal Article: A nonlinear panel data model of cross-sectional dependence (2014)
Working Paper: A Nonlinear Panel Data Model of Cross-Sectional Dependence (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nsr:niesrd:370

Access Statistics for this paper

More papers in National Institute of Economic and Social Research (NIESR) Discussion Papers from National Institute of Economic and Social Research 2 Dean Trench Street Smith Square London SW1P 3HE. Contact information at EDIRC.
Bibliographic data for series maintained by Library & Information Manager ().