CFDP 1246

Maximum Likelihood Estimation in Panels with Incidental Trends

Author(s): 

Publication Date: December 1999

Pages: 30

Abstract: 

It is shown that the maximum likelihood estimator of a local to unity parameter can be consistently estimated with panel data when the cross section observations are independent. Consistency applies when there are no deterministic trends or when there is a homogeneous deterministic trend in the panel model. When there are heterogeneous deterministic trends the panel MLE of the local to unity parameter is inconsistent. This outcome provides a new instance of inconsistent ML estimation in dynamic panels, and, unlike earlier results of this type, applies when both T approaches infinity and N approaches infinity.

Keywords: 

Deterministic trends, dynamic panels, incidental parameters, inconsistent maximum likelihood estimator, local to unity, nonstationary panel data

See CFP: 999