Asymptotic Collinearity in CCE Estimation of Interactive Effects Models
(2018) In Economic Modelling 70. p.331-337- Abstract
- Researchers sometime fall into the dummy variable trap. A typical scenario in panel data is when wanting to estimate the effect of a regressor that is time invariant, such as sex or race, and accidentally including cross-section specific fixed effects. The problem here is that the fixed effects and the regressor are collinear, which causes the resulting pooled least squares estimator to break down. In interactive effects models such breakdowns can occur even if the regressors are not time invariant. The reason is that the interactive effects are flexible enough to generate a wide range of behaviours that are likely to be shared by the regressors. The current paper considers the challenging case when some of the regressors are... (More)
- Researchers sometime fall into the dummy variable trap. A typical scenario in panel data is when wanting to estimate the effect of a regressor that is time invariant, such as sex or race, and accidentally including cross-section specific fixed effects. The problem here is that the fixed effects and the regressor are collinear, which causes the resulting pooled least squares estimator to break down. In interactive effects models such breakdowns can occur even if the regressors are not time invariant. The reason is that the interactive effects are flexible enough to generate a wide range of behaviours that are likely to be shared by the regressors. The current paper considers the challenging case when some of the regressors are asymptotically collinear with the interactive effects. The relevant asymptotic theory is developed and tested in small samples using both simulated and real data. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/114ccde1-df0e-460c-8e71-14d43fbfbcc4
- author
- Westerlund, Joakim LU and Petrova, Yana LU
- organization
- publishing date
- 2018
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- CCE estimation, Interactive effects, Asymptotic collinearity, Singular signal matrix, C12, C13, C33, C36
- in
- Economic Modelling
- volume
- 70
- pages
- 331 - 337
- publisher
- Elsevier
- external identifiers
-
- scopus:85027494176
- ISSN
- 0264-9993
- DOI
- 10.1016/j.econmod.2017.07.023
- language
- English
- LU publication?
- yes
- id
- 114ccde1-df0e-460c-8e71-14d43fbfbcc4
- date added to LUP
- 2017-09-04 06:52:15
- date last changed
- 2022-03-24 20:50:23
@article{114ccde1-df0e-460c-8e71-14d43fbfbcc4, abstract = {{Researchers sometime fall into the dummy variable trap. A typical scenario in panel data is when wanting to estimate the effect of a regressor that is time invariant, such as sex or race, and accidentally including cross-section specific fixed effects. The problem here is that the fixed effects and the regressor are collinear, which causes the resulting pooled least squares estimator to break down. In interactive effects models such breakdowns can occur even if the regressors are not time invariant. The reason is that the interactive effects are flexible enough to generate a wide range of behaviours that are likely to be shared by the regressors. The current paper considers the challenging case when some of the regressors are asymptotically collinear with the interactive effects. The relevant asymptotic theory is developed and tested in small samples using both simulated and real data.}}, author = {{Westerlund, Joakim and Petrova, Yana}}, issn = {{0264-9993}}, keywords = {{CCE estimation; Interactive effects; Asymptotic collinearity; Singular signal matrix; C12; C13; C33; C36}}, language = {{eng}}, pages = {{331--337}}, publisher = {{Elsevier}}, series = {{Economic Modelling}}, title = {{Asymptotic Collinearity in CCE Estimation of Interactive Effects Models}}, url = {{http://dx.doi.org/10.1016/j.econmod.2017.07.023}}, doi = {{10.1016/j.econmod.2017.07.023}}, volume = {{70}}, year = {{2018}}, }