Semiparametric Trending Panel Data Models with Cross-Sectional Dependence

30 Pages Posted: 18 Sep 2010

See all articles by Jiti Gao

Jiti Gao

Monash University - Department of Econometrics & Business Statistics

Jia Chen

University of Adelaide - School of Economics

Degui Li

University of Adelaide - School of Economics

Date Written: September 15, 2010

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 semiparametric profile likelihood approach based on the first-stage local linear fitting is developed to estimate both the parameter vector and the time trend function. As both the time series length T and the cross-sectional size N tend to infinity simultaneously, the resulting semiparametric estimator of the parameter vector is asymptotically normal with an optimal rate of convergence. Meanwhile, an asymptotic distribution for the estimate of the nonlinear time trend function is also established with also an optimal rate of convergence. Two simulated examples are provided to illustrate the finite sample behavior of the proposed estimation method. In addition, the proposed model and estimation method is applied to the analysis of two sets of real data.

Keywords: Cross-sectional dependence, nonlinear time trend, panel data, profile likelihood, semiparametric regression

JEL Classification: C13, C14, C23, C31, C33

Suggested Citation

Gao, Jiti and Chen, Jia and Li, Degui, Semiparametric Trending Panel Data Models with Cross-Sectional Dependence (September 15, 2010). Available at SSRN: https://ssrn.com/abstract=1677749 or http://dx.doi.org/10.2139/ssrn.1677749

Jiti Gao (Contact Author)

Monash University - Department of Econometrics & Business Statistics ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
61399031675 (Phone)
61399032007 (Fax)

HOME PAGE: http://www.jitigao.com

Jia Chen

University of Adelaide - School of Economics ( email )

No 233 North Terrace, School of Commerce
Adelaide SA, SA 5005
Australia

Degui Li

University of Adelaide - School of Economics ( email )

No 233 North Terrace, School of Commerce
Adelaide, South Australia 5005
Australia

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