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

51 Pages Posted: 3 Jan 2013

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

Multiple version iconThere are 3 versions of this paper

Date Written: December 28, 2012

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: C230, C250

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 (December 28, 2012). CESifo Working Paper Series No. 4033, Available at SSRN: https://ssrn.com/abstract=2195477

Majid Al-Sadoon

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 (Contact Author)

University of Southern California - Department of Economics ( email )

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

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