Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity

Hyungsik Roger Moon (), Frank Schorfheide and Boyuan Zhang ()
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Hyungsik Roger Moon: Univ. of Southern California
Boyuan Zhang: Amazon.com

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We incorporate a version of a spike and slab prior, comprising a point mass 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: Bayesian Analysis; Forecasting; Income Dynamics; Panel Data Models; Sparsity; Spike-and-Slab Priors (search for similar items in EconPapers)
JEL-codes: C11 C23 C53 E20 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2023-10-19
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Working Paper: Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity (2024)
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