I would appreciate some help with the following problem:
We have the following panel model: yit=h(xitβ+ci)+ϵit,t=1,…,T,i=1,…,Nci∣xi is N(0,σc2)
Also,
{ϵit}t=1T are independently distributed N(0,σϵ2) over time conditional on(xi,ci)
yi:=(yi1,…,yiT) is a vector of outcomes
xi:=(xi1,…,xiT) gathers the possibly time-varying regressors
xit=(1,xit2,xit3) with xit2 binary and xit3 continuous
The model parameters involve (β,σϵ,σc,h), where σc∈R++ and h:R→R is some unknown function.
Show that the log-likelihood contribution for the model viewed as a function of (β,σϵ,σc,h) equals:
li(β,σϵ,σc,h)=−Tlog(σϵ)−
log[∫−∞∞exp(−σϵ21t=1∑T[(yit−h(xitβ+σcc)]2)ϕ(c)dc]−2Tlog(2π)
Any help would be much appreciated. My guess is that the first steps involve recognizing that the cond densities: f(yit=h(xitβ+ci)+ϵit∣h,σϵ)=f(ϵit=yit−h(xitβ+ci)+∣h,σϵ) This we can write as a normal pdf:
2πσϵ1exp(−2σϵ2ϵit2).
Then taking logarithms etc.. But I am still nowhere near the answer. Any expert help available?
We have the following panel model: yit=h(xitβ+ci)+ϵit,t=1,…,T,i=1,…,Nci∣xi is N(0,σc2)
Also,
{ϵit}t=1T are independently distributed N(0,σϵ2) over time conditional on(xi,ci)
yi:=(yi1,…,yiT) is a vector of outcomes
xi:=(xi1,…,xiT) gathers the possibly time-varying regressors
xit=(1,xit2,xit3) with xit2 binary and xit3 continuous
The model parameters involve (β,σϵ,σc,h), where σc∈R++ and h:R→R is some unknown function.
Show that the log-likelihood contribution for the model viewed as a function of (β,σϵ,σc,h) equals:
li(β,σϵ,σc,h)=−Tlog(σϵ)−
log[∫−∞∞exp(−σϵ21t=1∑T[(yit−h(xitβ+σcc)]2)ϕ(c)dc]−2Tlog(2π)
Any help would be much appreciated. My guess is that the first steps involve recognizing that the cond densities: f(yit=h(xitβ+ci)+ϵit∣h,σϵ)=f(ϵit=yit−h(xitβ+ci)+∣h,σϵ) This we can write as a normal pdf:
2πσϵ1exp(−2σϵ2ϵit2).
Then taking logarithms etc.. But I am still nowhere near the answer. Any expert help available?