Adaptive Estimation of Heteroskedastic Error Component Models

This paper checks the sensitivity of two adaptive heteroskedastic estimators suggested by Li and Stengos (1994 Li , Q. , Stengos , T. ( 1994 ). Adaptive estimation in the panel data error component model with heteroskedasticity of unknown form . Internat. Econ. Rev. 35 : 981 – 1000 .[Crossref], [Web of Science ®] , [Google Scholar]) and Roy (2002 Roy , N. ( 2002 ). Is adaptive estimation useful for panel models with heteroskedasticity in the individual specific error component? Some Monte Carlo evidence . Econometric Rev. 21 : 189 – 203 . [CROSSREF] [Taylor & Francis Online] , [Google Scholar]) for an error component regression model to misspecification of the form of heteroskedasticity. In particular, we run Monte Carlo experiments using the heteroskedasticity setup by Li and Stengos (1994 Li , Q. , Stengos , T. ( 1994 ). Adaptive estimation in the panel data error component model with heteroskedasticity of unknown form . Internat. Econ. Rev. 35 : 981 – 1000 .[Crossref], [Web of Science ®] , [Google Scholar]) to see how the misspecified Roy (2002 Roy , N. ( 2002 ). Is adaptive estimation useful for panel models with heteroskedasticity in the individual specific error component? Some Monte Carlo evidence . Econometric Rev. 21 : 189 – 203 . [CROSSREF] [Taylor & Francis Online] , [Google Scholar]) estimator performs. Next, we use the heteroskedasticity setup by Roy (2002 Roy , N. ( 2002 ). Is adaptive estimation useful for panel models with heteroskedasticity in the individual specific error component? Some Monte Carlo evidence . Econometric Rev. 21 : 189 – 203 . [CROSSREF] [Taylor & Francis Online] , [Google Scholar]) to see how the misspecified Li and Stengos (1994 Li , Q. , Stengos , T. ( 1994 ). Adaptive estimation in the panel data error component model with heteroskedasticity of unknown form . Internat. Econ. Rev. 35 : 981 – 1000 .[Crossref], [Web of Science ®] , [Google Scholar]) estimator performs. We also check the sensitivity of these results to the choice of the smoothing parameters, the sample size, and the degree of heteroskedasticity. We find that the Li and Stengos (1994 Li , Q. , Stengos , T. ( 1994 ). Adaptive estimation in the panel data error component model with heteroskedasticity of unknown form . Internat. Econ. Rev. 35 : 981 – 1000 .[Crossref], [Web of Science ®] , [Google Scholar]) estimator performs better under this type of misspecification than the corresponding estimator of Roy (2002 Roy , N. ( 2002 ). Is adaptive estimation useful for panel models with heteroskedasticity in the individual specific error component? Some Monte Carlo evidence . Econometric Rev. 21 : 189 – 203 . [CROSSREF] [Taylor & Francis Online] , [Google Scholar]). However, the former estimator is sensitive to the choice of the bandwidth.