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

Cheng Hsiao (Department of Economics, University of Southern California, University Park, Los Angeles, California, United States; and WISE, Xiamen University, Xiamen, China)

Qiankun Zhou (Department of Economics, Louisiana State University, Baton Rouge, Louisiana, US)

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

ISBN: 978-1-83753-213-1, eISBN: 978-1-83753-212-4

Publication date: 24 April 2023

Abstract

The authors consider the quasi maximum likelihood (MLE) estimation of dynamic panel models with interactive effects based on the Ahn 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 when N→∞ 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.

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Acknowledgements

Acknowledgments

We would like to thank the editor, a referee and Ruiqi Liu and Yonghui Zhang for helpful comments. All remaining errors are solely ours. Partial research support of China NSF grant #771631004 and #72033008 to the first author is gratefully acknowledged.

Citation

Hsiao, C. and Zhou, Q. (2023), "Maximum Likelihood Estimation of Dynamic Panel Data Models with Interactive Effects: Quasi-Differencing Over Time or Across Individuals?", Chang, Y., Lee, S. and Miller, J.I. (Ed.) Essays in Honor of Joon Y. Park: Econometric Methodology in Empirical Applications (Advances in Econometrics, Vol. 45B), Emerald Publishing Limited, Leeds, pp. 353-384. https://doi.org/10.1108/S0731-90532023000045B015

Publisher

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Emerald Publishing Limited