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Stein-like Shrinkage Estimation of Panel Data Models with Common Correlated Effects

aCentral University of Finance & Economics, China
bUniversity of California Riverside, United States

Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part A

ISBN: 978-1-78973-242-9, eISBN: 978-1-78973-241-2

ISSN: 0731-9053

Publication date: 30 August 2019

Abstract

This chapter examines the asymptotic properties of the Stein-type shrinkage combined (averaging) estimation of panel data models. We introduce a combined estimation when the fixed effects (FE) estimator is inconsistent due to endogeneity arising from the correlated common effects in the regression error and regressors. In this case, the FE estimator and the CCEP estimator of Pesaran (2006) are combined. This can be viewed as the panel data model version of the shrinkage to combine the OLS and 2SLS estimators as the CCEP estimator is a 2SLS or control function estimator that controls for the endogeneity arising from the correlated common effects. The asymptotic theory, Monte Carlo simulation, and empirical applications are presented. According to our calculation of the asymptotic risk, the Stein-like shrinkage estimator is more efficient estimation than the CCEP estimator.

Keywords

Acknowledgements

Acknowledgment

We thank the participants at the AIE40 Conference at UCI, the co-editor, and an anonymous referee for many valuable inputs that have helped improving the chapter.

Citation

Huang, B., Lee, T.-H. and Ullah, A. (2019), "Stein-like Shrinkage Estimation of Panel Data Models with Common Correlated Effects", Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part A (Advances in Econometrics, Vol. 40A), Emerald Publishing Limited, Bingley, pp. 249-274. https://doi.org/10.1108/S0731-90532019000040A011

Publisher

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Emerald Publishing Limited

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