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Semiparametric trending panel data models with cross-sectional dependence

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JournalJournal of Econometrics
DatePublished - Nov 2012
Issue number1
Volume171
Number of pages15
Pages (from-to)71-85
Original languageEnglish

Abstract

A semiparametric fixed effects model is introduced to describe the nonlinear trending phenomenon in panel data analysis and it allows for the cross-sectional dependence in both the regressors and the residuals. A pooled semiparametric profile likelihood dummy variable approach based on the first-stage local linear fitting is developed to estimate both the parameter vector and the nonlinear time trend function. As both the time series length T and the cross-sectional size N tend to infinity, the resulting estimator of the parameter vector is asymptotically normal with a root-(NT) convergence rate. Meanwhile, the asymptotic distribution for the nonparametric estimator of the trend function is also established with a root-(NTh) convergence rate. Two simulated examples are provided to illustrate the finite sample performance of the proposed method. In addition, the proposed model and estimation method are applied to a CPI data set as well as an input-output data set. (C) 2012 Elsevier B.V. All rights reserved.

    Research areas

  • Nonlinear time trend, Local linear fitting, COEFFICIENT, Profile likelihood, INFERENCE, TIME-SERIES, Panel data, Cross-sectional dependence, Semiparametric regression

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