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  • https://doi.org/10.1080/07474938.2025.2503355Copy DOI Icon

Short panel data quantile regression model with flexible correlated effects

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Abstract

I propose an alternative linear model for short panel data quantile regression. The model assumes a nonparametric correlated effect (CE) that is τ-quantile-specific and time-invariant. The resulting partially linear model provides inference robust to misspecification, and it is characterized as a best linear approximation to the truth under a generalized correlated random effect assumption. At the cost of modeling the individual heterogeneity, the model is free of incidental parameters, and it does not restrict within-group dependence of idiosyncratic errors at all. The modeled heterogeneity is still well-aligned with the fixed effect approach in the linear mean regression model. For estimation, sieve-approximated CE is regularized by nonconvex penalization which enjoys the oracle property against ultra-high dimensionality. Unpenalized sieve estimation is also available. As an empirical application, the proposed method is used to estimate the distributional effect of smoking on birth weights. Using a dataset where fixed effects quantile regression is computationally infeasible, the method yields more refined estimates compared to the one based on a linear CE.

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