Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 0432: Asymptotic properties of the maximum likelihood estimator of random effects models with serial correlation

Jimmy Skoglund (jimmy.skoglund@foreningssparbanken.se) and Sune Karlsson (sune.karlsson@oru.se)
Additional contact information
Jimmy Skoglund: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
Sune Karlsson: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper considers the large sample behavior of the maximum likelihood estimator of random effects models with serial correlation in the form of AR(1) for the idiosyncratic or time-specific error component. Consistent estimation and asymptotic normality as N and/or T grows large is established for a comprehensive specification which nests these models as well as all commonly used random effects models. When only N or T grows large only a subset of the parameters are consistent and asymptotic normality is established for the consistent subsets.

Keywords: Panel data; serial correlation; random effects

JEL-codes: C12; C13; C23

47 pages, February 13, 2001

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