Semiparametric estimation of fixed-effects panel data varying coefficient models

Abstract

We consider the problem of estimating a varying coefficient panel data model with fixed-effects (FE) using a local linear regression approach. Unlike first-differenced estimator, our proposed estimator removes FE using kernel-based weights. This results a one-step estimator without using the backfitting technique. The computed estimator is shown to be asymptotically normally distributed. A modified least-squared cross-validatory method is used to select the optimal bandwidth automatically. Moreover, we propose a test statistic for testing the null hypothesis of a random-effects varying coefficient panel data model against an FE one. Monte Carlo simulations show that our proposed estimator and test statistic have satisfactory finite sample performance.

Citation

Sun, Y., Carroll, R.J. and Li, D. (2009), "Semiparametric estimation of fixed-effects panel data varying coefficient models", Li, Q. and Racine, J.S. (Ed.) Nonparametric Econometric Methods (Advances in Econometrics, Vol. 25), Emerald Group Publishing Limited, Leeds, pp. 101-129. https://doi.org/10.1108/S0731-9053(2009)0000025006