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arXiv · 2310.13785

Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity

Hyungsik Roger Moon·Frank Schorfheide·Boyuan Zhang
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Abstract

We incorporate a version of a spike and slab prior, comprising a pointmass at zero ("spike") and a Normal distribution around zero ("slab") into a dynamic panel data framework to model coefficient heterogeneity. In addition to homogeneity and full heterogeneity, our specification can also capture sparse heterogeneity, that is, there is a core group of units that share common parameters and a set of deviators with idiosyncratic parameters. We fit a model with unobserved components to income data from the Panel Study of Income Dynamics. We find evidence for sparse heterogeneity for balanced panels composed of individuals with long employment histories.

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Hyungsik Roger Moon, Frank Schorfheide, Boyuan Zhang. 2023-10-20. Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity. https://arxiv.org/abs/2310.13785

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