Purpose
This paper introduces more advanced panel data specifications that would exploit heterogeneity and allow for arbitrary forms of autocorrelation and heteroskedasticity in the error terms.
Design/methodology/approach
In line with Assaf and Tsionas (2019a, 2019b), this paper builds on the Mundlak device to propose panel data models to allow for random slope coefficients, as well as time slope coefficients. This paper allows for arbitrary heteroskedasticity and autocorrelation, thus mitigating possible model misspecification. This paper develops and estimates the model in a Bayesian framework. This paper’s methods can be generalized to many nonlinear models including limited dependent variable models.
Findings
This paper compares several competing models such as a classical panel data model, which has only firm effects. This paper also examines the role of standard deviations in the formation of firm effects and time effects in the Mundlak device. This paper clearly shows that our framework introduces the best flexibility and model fit.
Research limitations/implications
This paper illustrates the importance of using more flexible models (i.e. unit-specific and time-varying coefficients) for future estimation of panel data in the field.
Originality/value
This paper discusses techniques that will improve panel data estimation in the hospitality and tourism literature.
