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A Varying-Coefficient Panel Data Model with Fixed Effects: Theory and an Application to U.S. Commercial Banks

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  • Guohua Feng
  • Jiti Gao
  • Bin Peng
  • Xiaohui Zhang

Abstract

In this paper, we propose a panel data semiparametric varying-coefficient model in which covariates (variables affecting the coefficients) are purely categorical. This model has two features: first, fixed effects are included to allow for correlation between individual unobserved heterogeneity and the regressors; second, it allows for cross-sectional dependence through a general spatial error dependence structure. We derive a semiparametric estimator for our model by using a modified within transformation, and then show the asymptotic and finite properties for this estimator. Finally, we illustrate our model by analysing the effects of state-level banking regulations on the returns to scale of commercial banks in the U.S. Our empirical results suggest that returns to scale is higher in more regulated states than in less regulated states.

Suggested Citation

  • Guohua Feng & Jiti Gao & Bin Peng & Xiaohui Zhang, 2015. "A Varying-Coefficient Panel Data Model with Fixed Effects: Theory and an Application to U.S. Commercial Banks," Monash Econometrics and Business Statistics Working Papers 9/15, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:msh:ebswps:2015-9
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    More about this item

    Keywords

    Categorial variable; estimation theory; nonlinear panel data model; returns to scale.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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