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SPECIFICATION OF VARIANCE MATRICES FOR PANEL DATA MODELS

Published online by Cambridge University Press:  19 June 2009

Jan R. Magnus  and
Chris Muris
Jan R. Magnus*
Affiliation:
Tilburg University
Chris Muris
Affiliation:
Tilburg University
*
*Address correspondence to Jan R. Magnus, Department of Econometrics and Operations Research, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, The Netherlands; e-mail: [email protected].
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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 × 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.

Type
NOTES AND PROBLEMS
Information
Econometric Theory , Volume 26 , Issue 1 , February 2010 , pp. 301 - 310
Copyright
Copyright © Cambridge University Press 2009

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