Arbeitspapier
Composite likelihood estimation of an autoregressive panel probit model with random effects
Modeling and estimating persistent discrete data can be challenging. In this paper, we use an autoregressive panel probit model where the autocorrelation in the discrete variable is driven by the autocorrelation in the latent variable. In such a non-linear model, the autocorrelation in an unobserved variable results in an intractable likelihood containing high-dimensional integrals. To tackle this problem, we use composite likelihoods that involve much lower order of integration. However, parameter identification becomes problematic since the information employed in lower dimensional distributions may not be rich enough for identification. Therefore, we characterize types of composite likelihoods that are valid for this model and study conditions under which the parameters can be identified. Moreover, we provide consistency and asymptotic normality results of the pairwise composite likelihood estimator and conduct Monte Carlo simulations to assess its finite-sample performances. Finally, we apply our method to analyze credit ratings. The results indicate a significant improvement in the estimated transition probabilities between rating classes compared with static models.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Working Paper ; No. 2019-16
- Classification
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Wirtschaft
Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
Financial Econometrics
Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- Subject
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Econometric and statistical methods
Economic models
Credit risk management
- Event
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Geistige Schöpfung
- (who)
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Tuzcuoglu, Kerem
- Event
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Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
-
2019
- DOI
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doi:10.34989/swp-2019-16
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Tuzcuoglu, Kerem
- Bank of Canada
Time of origin
- 2019
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