Efficiency of QMLE for dynamic panel data models with interactive effects

Jushan Bai

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arXiv · 2312.07881

Efficiency of QMLE for dynamic panel data models with interactive effects

Jushan Bai

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Abstract

This paper studies the problem of efficient estimation of panel data models in the presence of an increasing number of incidental parameters. We formulate the dynamic panel as a simultaneous equations system, and derive the efficiency bound under the normality assumption. We then show that the Gaussian quasi-maximum likelihood estimator (QMLE) applied to the system achieves the normality efficiency bound without the normality assumption. Comparison of QMLE with the fixed effects approach is made.

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Jushan Bai. 2023-12-13. Efficiency of QMLE for dynamic panel data models with interactive effects. https://arxiv.org/abs/2312.07881

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