Semiparametric Estimation of Fixed Eects Panel Data Varying Coecient Models

We consider the problem of estimating a varying coecient panel data model with xed eects using a local linear regression approach. Unlike rst-dierenced estimator, our proposed estimator removes xed eects using kernel-based weights. This results a one-step estimator without using back-tting technique. The computed estimator is shown to be asymptotically normally distributed. A modied least-squared cross-validatory method is used to select the optimal bandwidth automatically. Moreover, we propose a test statistic for testing the null hypothesis of a random eects against a xed eects varying coecient panel data model. Monte Carlo simulations show that our proposed estimator and test statistic have satisfactory nite sample performance. Key words: Consistent test; Fixed eects; Panel data; Varying coecients model.