Journal Article

Orthogonal Parameters and Panel Data

Tony Lancaster

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 69, issue 3, pages 647-666
Published in print July 2002 | ISSN: 0034-6527
Published online July 2002 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.t01-1-00025
Orthogonal Parameters and Panel Data

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This paper describes a class of consistent estimators for short panels with fixed effects. The method is to find an orthogonal reparametrization of the fixed effects and then to integrate the new effects from the likelihood with respect to an appropriately chosen prior density. The resulting marginal posterior densities of the common parameters have modes that are shown to be consistent in the models examined here. The main result concerns the first-order autoregressive model with agent specific intercepts where the likelihood is conditional on the set of initial observations. This paper provides a consistent likelihoodbased estimator for this model. Some numerical illustrations are given. The first-order conditions for the posterior mode can also be thought of as new moment conditions for GMM estimation.

Keywords: C23; C33

Journal Article.  0 words. 

Subjects: Multiple or Simultaneous Equation Models; Multiple Variables ; Single Equation Models; Single Variables

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