Building Better Econometric Models Using Cross Section and Panel Data

Chapter 10

Dynamic Parametric Heterogeneity

Harking back to the explanation of dynamic parametric heterogeneity outlined in Chapter 3, typically researchers assume that all slope coefficients are constant over time. This means that we assume all relationships between x and y are also constant. In other words, given the simple model

(10.1)

researchers typically assume that

(10.2)

But instead, what if we actually had

(10.3)

where

(10.4)

Or, ...