Functional coefficient panel modeling with communal smoothing covariates
Functional coefficient panel modeling with communal smoothing covariates
Behavior at the individual level in panels is often influenced by aspects of the system in aggregate. In particular, the interaction between individual-specific explanatory variables and an individual dependent variable may be affected by ‘global’ variables that are relevant in decision making and shared communally by all individuals in the sample. To capture such behavioral features, we employ a functional coefficient panel model in which certain communal covariates may jointly influence panel interactions by means of their impact on the model coefficients. Two classes of estimation procedures are proposed, one based on cross-section averaged data, the other on the full panel. The asymptotic properties of these methods are obtained and compared, allowing for sequential and joint expansion of the cross-section and time series sample sizes. Limit theory for the associated fixed effects estimators is derived and inferential procedures are developed to test hypotheses concerning the functional coefficients. The finite sample performance of the proposed estimators and tests are examined by simulation. An empirical illustration is provided in which the regional sensitivity of housing rental prices to available job numbers is studied with national labor force participation rate as the communal smoothing covariate. Strong evidence is found supporting the functional coefficient specification with this country-wide smoothing variable.
Communal covariates, Fixed effects, Functional coefficients, Housing rental prices, Panel data, Tests of constancy
Phillips, Peter C.b.
f67573a4-fc30-484c-ad74-4bbc797d7243
Wang, Ying
f248f5c0-cf84-4c8d-8455-00255096e5f3
12 April 2021
Phillips, Peter C.b.
f67573a4-fc30-484c-ad74-4bbc797d7243
Wang, Ying
f248f5c0-cf84-4c8d-8455-00255096e5f3
Phillips, Peter C.b. and Wang, Ying
(2021)
Functional coefficient panel modeling with communal smoothing covariates.
Journal of Econometrics.
(doi:10.1016/j.jeconom.2021.03.004).
Abstract
Behavior at the individual level in panels is often influenced by aspects of the system in aggregate. In particular, the interaction between individual-specific explanatory variables and an individual dependent variable may be affected by ‘global’ variables that are relevant in decision making and shared communally by all individuals in the sample. To capture such behavioral features, we employ a functional coefficient panel model in which certain communal covariates may jointly influence panel interactions by means of their impact on the model coefficients. Two classes of estimation procedures are proposed, one based on cross-section averaged data, the other on the full panel. The asymptotic properties of these methods are obtained and compared, allowing for sequential and joint expansion of the cross-section and time series sample sizes. Limit theory for the associated fixed effects estimators is derived and inferential procedures are developed to test hypotheses concerning the functional coefficients. The finite sample performance of the proposed estimators and tests are examined by simulation. An empirical illustration is provided in which the regional sensitivity of housing rental prices to available job numbers is studied with national labor force participation rate as the communal smoothing covariate. Strong evidence is found supporting the functional coefficient specification with this country-wide smoothing variable.
Text
FCpanel-main-Mar-18-2021_pcb
- Accepted Manuscript
More information
Accepted/In Press date: 9 March 2021
e-pub ahead of print date: 12 April 2021
Published date: 12 April 2021
Additional Information:
Funding Information:
The authors thank the Managing Editor, Serena Ng, an Associate Editor, and two referees for many helpful comments and suggestions on earlier versions of the paper. Research support is acknowledged from Marsden Grant 16-UOA-239 at the University of Auckland, New Zealand . Phillips acknowledges support from the Kelly Fund at the University of Auckland, New Zealand , an LKC Fellowship at Singapore Management University , and the NSF under Grant No. SES 18-50860 .
Publisher Copyright:
© 2021 Elsevier B.V.
Keywords:
Communal covariates, Fixed effects, Functional coefficients, Housing rental prices, Panel data, Tests of constancy
Identifiers
Local EPrints ID: 449006
URI: http://eprints.soton.ac.uk/id/eprint/449006
ISSN: 0304-4076
PURE UUID: 91d9d21c-9859-4afb-b819-f64e9f6d24ba
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Date deposited: 13 May 2021 16:38
Last modified: 17 Mar 2024 06:32
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Author:
Ying Wang
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