Direct semi-parametric estimation of fixed effects panel data varying coefficient models.

Abstract: In this paper, we present a new technique to estimate varying coefficient models of unknown form in a panel data framework where individual effects are arbitrarily correlated with the explanatory variables in an unknown way. The estimator is based on first differences and then a local linear regression is applied to estimate the unknown coefficients. To avoid a non-negligible asymptotic bias, we need to introduce a higher-dimensional kernel weight. This enables us to remove the bias at the price of enlarging the variance term and, hence, achieving a slower rate of convergence. To overcome this problem, we propose a one-step backfitting algorithm that enables the resulting estimator to achieve optimal rates of convergence for this type of problem. It also exhibits the so-called oracle efficiency property. We also obtain the asymptotic distribution. Because the estimation procedure depends on the choice of a bandwidth matrix, we also provide a method to compute this matrix empirically. The Monte Carlo results indicate the good performance of the estimator in finite samples.

 Fuente: Econometrics Journal, volume 17 (2014), pp. 107–138.

Editorial: Wiley-Blackwell

 Fecha de publicación: 01/01/2014

Nº de páginas: 32

Tipo de publicación: Artículo de Revista

DOI: 10.1111/ectj.12022

ISSN: 1368-4221,1368-423X

Url de la publicación: http://dx.doi.org/10.1111/ectj.12022