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

46 Pages Posted: 27 Jan 2016

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)

Multiple version iconThere are 3 versions of this paper

Date Written: January 18, 2016

Abstract

This paper proposes an exponential class of dynamic binary choice panel data models for the analysis of short T (time dimension) large N (cross section dimension) panel data sets that allows for unobserved heterogeneity (fixed effects) to be arbitrarily correlated with the covariates. The paper derives moment conditions that are invariant to the fixed effects which are then used to identify and estimate the parameters of the model. Accordingly, GMM estimators are proposed that are consistent and asymptotically normally distributed at the root-N rate. We also study the conditional likelihood approach, and show that under exponential specification it can identify the effect of state dependence but not the effects of other covariates. Monte Carlo experiments show satisfactory finite sample performance for the proposed estimators, and investigate their robustness to miss-specification.

Keywords: Dynamic Discrete Choice, Fixed Effects, Panel Data, 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 (January 18, 2016). USC-INET Research Paper No. 16-03, Available at SSRN: https://ssrn.com/abstract=2720447 or http://dx.doi.org/10.2139/ssrn.2720447

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

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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