Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/130004 
Year of Publication: 
2014
Series/Report no.: 
cemmap working paper No. CWP43/14
Publisher: 
Centre for Microdata Methods and Practice (cemmap), London
Abstract: 
Empirical Bayes methods for Gaussian compound decision problems involving longitudinal data are considered. The new convex optimization formulation of the nonparametric (Kiefer-Wolfowitz) maximum likelihood estimator for mixture models is employed to construct nonparametric Bayes rules for compound decisions. The methods are first illustrated with some simulation examples and then with an application to models of income dynamics. Using PSID data we estimate a simple dynamic model of earnings that incorporates bivariate heterogeneity in intercept and variance of the innovation process. Profile likelihood is employed to estimate an AR(1) parameter controlling the persistence of the innovations. We find that persistence is relatively modest, p= 0.48, when we permit heterogeneity in variances. Evidence of negative dependence between individual intercepts and variances is revealed by the nonparametric estimation of the mixing distribution, and has important consequences for forecasting future income trajectories.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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