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Efficiency of QMLE for dynamic panel data models with interactive effects

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  • Jushan Bai

Abstract

This paper derives the efficiency bound for estimating the parameters of dynamic panel data models in the presence of an increasing number of incidental parameters. We study the efficiency problem by formulating the dynamic panel as a simultaneous equations system, and show that the quasi-maximum likelihood estimator (QMLE) applied to the system achieves the efficiency bound. Comparison of QMLE with fixed effects estimators is made.

Suggested Citation

  • Jushan Bai, 2023. "Efficiency of QMLE for dynamic panel data models with interactive effects," Papers 2312.07881, arXiv.org, revised Apr 2024.
    • Handle: RePEc:arx:papers:2312.07881
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    References listed on IDEAS

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    1. Alvarez, Javier & Arellano, Manuel, 2022. "Robust likelihood estimation of dynamic panel data models," Journal of Econometrics, Elsevier, vol. 226(1), pages 21-61.
    2. Bai, Jushan, 2024. "Likelihood approach to dynamic panel models with interactive effects," Journal of Econometrics, Elsevier, vol. 240(1).
    3. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
    4. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    5. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, July.
    6. Onatski, Alexei, 2012. "Asymptotics of the principal components estimator of large factor models with weakly influential factors," Journal of Econometrics, Elsevier, vol. 168(2), pages 244-258.
    7. Moon, Hyungsik Roger & Weidner, Martin, 2017. "Dynamic Linear Panel Regression Models With Interactive Fixed Effects," Econometric Theory, Cambridge University Press, vol. 33(1), pages 158-195, February.
    8. Haruo Iwakura & Ryo Okui, 2014. "Asymptotic Efficiency in Factor Models and Dynamic Panel Data Models," KIER Working Papers 887, Kyoto University, Institute of Economic Research.
    9. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
    10. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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