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Maximum Likelihood Estimation of Dynamic Panel Data Models with Interactive Effects: Quasi-Differencing Over Time or Across Individuals?

In: Essays in Honor of Joon Y. Park: Econometric Methodology in Empirical Applications

Author

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  • Cheng Hsiao
  • Qiankun Zhou

Abstract

The authors consider the quasi maximum likelihood (MLE) estimation of dynamic panel models with interactive effects based on theAhn et al. (2001,2013) quasi-differencing methods to remove the interactive effects. The authors show that the quasi-difference MLE (QDMLE) over time is inconsistent whenN→∞whether T is fixed or goes to infinity. On the other hand, the QDMLE is consistent and asymptotically unbiased if the difference is taken over individuals when T is large whether N is fixed or large. Monte Carlo studies are conducted to compare the performance of the QDMLE using different quasi-difference methods.

Suggested Citation

  • Cheng Hsiao & Qiankun Zhou, 2023. "Maximum Likelihood Estimation of Dynamic Panel Data Models with Interactive Effects: Quasi-Differencing Over Time or Across Individuals?," Advances in Econometrics, in: Essays in Honor of Joon Y. Park: Econometric Methodology in Empirical Applications, volume 45, pages 353-384, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-90532023000045b015
    DOI: 10.1108/S0731-90532023000045B015
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    More about this item

    Keywords

    Dynamic panel models; interactive effects; maximum likelihood estimation; quasi-difference; high dimensional data; unbiasedness; C01; C13; C23;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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