COWLES FOUNDATION FOR RESEARCH IN
ECONOMICS Box 208281
COWLES FOUNDATION DISCUSSION PAPER NO. 1246 Maximum Likelihood Estimation in Panels with Incidental Trends Hyungsik R. Moon and Peter C.B. Phillips December 1999 It is shown that the maximum likelihood estimator of a local to unity parameter can be consistently estimated with panel data when the cross section observations are independent. Consistency applies when there are no deterministic trends or when there is a homogeneous deterministic trend in the panel model. When there are heterogeneous deterministic trends the panel MLE of the local to unity parameter is inconsistent. This outcome provides a new instance of inconsistent ML estimation in dynamic panels, and, unlike earlier results of this type, applies when both T approaches infinity and N approaches infinity. Keywords: Deterministic trends, dynamic panels, incidental parameters, inconsistent maximum likelihood estimator, local to unity, nonstationary panel data |
