Specification of variance matrices for panel data models
Magnus,J.R. Muris,C.H.M.
Magnus,J.R.
Muris,C.H.M.
Abstract
Many regression models have two dimensions, say time (t = 1,...,T) and households (i = 1,...,N), as in panel data, error components, or spatial econometrics. In estimating such models we need to specify the structure of the error variance matrix Ω, which is of dimension T N x T N. If T N is large, then direct computation of the determinant and inverse of Ω is not practical. In this note we define structures of Ω that allow the computation of its determinant and inverse, only using matrices of orders T and N, and at the same time allowing for heteroskedasticity, for household- or station-specific autocorrelation, and for time-specific spatial correlation.
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Date
2010
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Research Projects
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Magnus, J R & Muris, C H M 2010, 'Specification of variance matrices for panel data models', Econometric Theory, vol. 26, no. 1, pp. 301-310.