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February 2014 Theory and methods of panel data models with interactive effects
Jushan Bai, Kunpeng Li
Ann. Statist. 42(1): 142-170 (February 2014). DOI: 10.1214/13-AOS1183

Abstract

This paper considers the maximum likelihood estimation of panel data models with interactive effects. Motivated by applications in economics and other social sciences, a notable feature of the model is that the explanatory variables are correlated with the unobserved effects. The usual within-group estimator is inconsistent. Existing methods for consistent estimation are either designed for panel data with short time periods or are less efficient. The maximum likelihood estimator has desirable properties and is easy to implement, as illustrated by the Monte Carlo simulations. This paper develops the inferential theory for the maximum likelihood estimator, including consistency, rate of convergence and the limiting distributions. We further extend the model to include time-invariant regressors and common regressors (cross-section invariant). The regression coefficients for the time-invariant regressors are time-varying, and the coefficients for the common regressors are cross-sectionally varying.

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Jushan Bai. Kunpeng Li. "Theory and methods of panel data models with interactive effects." Ann. Statist. 42 (1) 142 - 170, February 2014. https://doi.org/10.1214/13-AOS1183

Information

Published: February 2014
First available in Project Euclid: 18 February 2014

zbMATH: 1331.62112
MathSciNet: MR3178459
Digital Object Identifier: 10.1214/13-AOS1183

Subjects:
Primary: 60F12 , 60F30
Secondary: 60H12

Keywords: Factor error structure , factor loadings , factors , maximum likelihood , principal components , simultaneous equations , within-group estimator

Rights: Copyright © 2014 Institute of Mathematical Statistics

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Vol.42 • No. 1 • February 2014
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