Non-parametric time-varying coefficient panel data models with fixed effects

Li, Degui, Chen, Jia and Gao, Jiti (2011) Non-parametric time-varying coefficient panel data models with fixed effects. Econometrics Journal, 14 3: 387-408. doi:10.1111/j.1368-423X.2011.00350.x

Author Li, Degui
Chen, Jia
Gao, Jiti
Title Non-parametric time-varying coefficient panel data models with fixed effects
Journal name Econometrics Journal   Check publisher's open access policy
ISSN 1368-4221
Publication date 2011-10
Sub-type Article (original research)
DOI 10.1111/j.1368-423X.2011.00350.x
Volume 14
Issue 3
Start page 387
End page 408
Total pages 22
Place of publication Oxford, United Kingdom
Publisher Wiley-Blackwell Publishing
Collection year 2012
Language eng
Formatted abstract
This paper is concerned with developing a non-parametric time-varying coefficient model with fixed effects to characterize non-stationarity and trending phenomenon in a non-linear panel data model. We develop two methods to estimate the trend function and the coefficient function without taking the first difference to eliminate the fixed effects. The first one eliminates the fixed effects by taking cross-sectional averages, and then uses a non-parametric local linear method to estimate both the trend and coefficient functions. The asymptotic theory for this approach reveals that although the estimates of both the trend function and the coefficient function are consistent, the estimate of the coefficient function has a rate of convergence of (Th)−1/2, which is slower than (NTh)−1/2 as the rate of convergence for the estimate of the trend function. To estimate the coefficient function more efficiently, we propose a pooled local linear dummy variable approach. This is motivated by a least squares dummy variable method proposed in parametric panel data analysis. This method removes the fixed effects by deducting a smoothed version of cross-time average from each individual. It estimates both the trend and coefficient functions with a rate of convergence of (NTh)−1/2. The asymptotic distributions of both of the estimates are established when T tends to infinity and N is fixed or both T and N tend to infinity. Both the simulation results and real data analysis are provided to illustrate the finite sample behaviour of the proposed estimation methods.
Keyword Fixed effects
Local linear estimation
Panel data
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: School of Mathematics and Physics
Official 2012 Collection
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Citation counts: TR Web of Science Citation Count  Cited 10 times in Thomson Reuters Web of Science Article | Citations
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Created: Tue, 22 Nov 2011, 11:58:35 EST by Dr Jia Chen on behalf of Mathematics