An Exponential Class of Dynamic Binary Choice Panel Data Models with Fixed Effects

52 Pages Posted: 15 Dec 2012

See all articles by Majid Al-Sadoon

Majid Al-Sadoon

Universitat Pompeu Fabra

Tong Li

Vanderbilt University

M. Hashem Pesaran

University of Southern California - Department of Economics; University of Cambridge - Trinity College (Cambridge)

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Abstract

This paper develops a model for dynamic binary choice panel data that allows for unobserved heterogeneity to be arbitrarily correlated with covariates. The model is of the exponential type. We derive moment conditions that enable us to eliminate the unobserved heterogeneity term and at the same time to identify the parameters of the model. We then propose GMM estimators that are consistent and asymptotically normally distributed at the root-N rate. We also study the conditional likelihood approach, which can only identify the effect of state dependence in our case. Monte Carlo experiments demonstrate the finite sample performance of our GMM estimators.

Keywords: dynamic discrete choice, fixed effects, panel data, initial values, GMM, CMLE

JEL Classification: C23, C25

Suggested Citation

Al-Sadoon, Majid and Li, Tong and Pesaran, M. Hashem, An Exponential Class of Dynamic Binary Choice Panel Data Models with Fixed Effects. IZA Discussion Paper No. 7054, Available at SSRN: https://ssrn.com/abstract=2189792

Majid Al-Sadoon (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Tong Li

Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States

M. Hashem Pesaran

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

University of Cambridge - Trinity College (Cambridge) ( email )

United Kingdom

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