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Working paper

Reconsideration of a simple approach to quantile regression for panel data

CEFIR/NES Working paper. CEFIR/NES Working paper. Center for Economic and Financial Research and New Economic School, 2018. No. 248.
Besstremyannaya G., Golovan S.
The note discusses a fallacy in the approach proposed by Ivan Canay (2011, The Econometrics Journal) for constructing a computationally simple two-step estimator in a quantile regression model with quantile-independent fixed effects. We formally prove that the estimator gives an incorrect inference for the constant term due to violation of the assumption about additive expansion of the first-step estimator, which requires the independence of its terms. Our simulations show that Canay's confidence intervals for the constant term are wrong. Finally, we focus on the fact that finding a sqrt(nT) consistent within estimator, as required by Canay's procedure, may be problematic. We provide an example of a model, for which we formally prove the non-existence of such an estimator.