Journal of Economic Literature (JEL) Code(s)
Behavior at the individual level in panels or at the station level in spatial models is often influenced by aspects of the system in aggregate. In particular, the nature of the interaction between individual-speciﬁc explanatory variables and an individual dependent variable may be aﬀected by `global’ variables that are relevant in decision making and shared communally by all individuals in the sample. To capture such behavioral features, we employ a functional coeﬀicient panel model in which certain communal covariates may jointly influence panel interactions by means of their impact on the model coeﬀicients. Two classes of estimation procedures are proposed, one based on station averaged data the other on the full panel, and their asymptotic properties are derived. Inference regarding the functional coeﬀicient is also considered. The ﬁnite sample performance of the proposed estimators and tests are examined by simulation. An empirical spatial model illustration is provided in which the climate sensitivity of temperature to atmospheric CO_2 concentration is studied at both station and global levels.
Phillips, Peter C.B. and Wang, Ying, "Functional Coefficient Panel Modeling with Communal Smoothing Covariates" (2019). Cowles Foundation Discussion Papers. 59.