More efficient local polynomial regression with random-effects panel data models |
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Authors: | Ke Yang |
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Institution: | Department of Economics, Barney School of Business, University of Hartford, West Hartford, Connecticut, USA |
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Abstract: | We propose a modification on the local polynomial estimation procedure to account for the “within-subject” correlation presented in panel data. The proposed procedure is rather simple to compute and has a closed-form expression. We study the asymptotic bias and variance of the proposed procedure and show that it outperforms the working independence estimator uniformly up to the first order. Simulation study shows that the gains in efficiency with the proposed method in the presence of “within-subject” correlation can be significant in small samples. For illustration purposes, the procedure is applied to explore the impact of market concentration on airfare. |
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Keywords: | Kernel regression Local polynomial regression Nonparametric method Random-effects panel data model Variance reduction |
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