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Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity

Author

Listed:
  • Moon, Hyungsik Roger
  • Schorfheide, Frank
  • Zhang, Boyuan

Abstract

We incorporate a version of a spike and slab prior, comprising a pointmass at zero ("spike") and a Normal distribution around zero ("slab") into a dynamic panel data framework to model coefficient heterogeneity. In addition to homogeneity and full heterogeneity, our specification can also capture sparse heterogeneity, that is, there is a core group of units that share common parameters and a set of deviators with idiosyncratic parameters. We fit a model with unobserved components to income data from the Panel Study of Income Dynamics. We find evidence for sparse heterogeneity for balanced panels composed of individuals with long employment histories.

Suggested Citation

  • Moon, Hyungsik Roger & Schorfheide, Frank & Zhang, Boyuan, 2023. "Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity," CEPR Discussion Papers 18560, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18560
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    More about this item

    Keywords

    Forecasting; Sparsity;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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