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First-differencing in panel data models with incidental functions

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  • Koen Jochmans

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

I discuss the fixed-effect estimation of panel data models with time-varying excess heterogeneity across cross-sectional units. These latent components are not given a parametric form. A modification to traditional first-differencing is motivated which, asymptotically, removes the permanent unobserved heterogeneity from the differenced model. Conventional estimation techniques can then be readily applied. Distribution theory for a kernel-weighted GMM estimator under large-n and fixed-T asymptotics is developed. The estimator is put to work in a series of numerical experiments to static and dynamic models.

Suggested Citation

  • Koen Jochmans, 2010. "First-differencing in panel data models with incidental functions," SciencePo Working papers Main hal-01069454, HAL.
    • Handle: RePEc:hal:spmain:hal-01069454
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01069454
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    Keywords

    dynamic panel data; GMM; incidental functions; local first- differencing; time-varying fixed effects; nonparametric heterogeneity.; nonparametric heterogeneity;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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