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st: re: What to do about multiple observations for one individual in one same period in a panel


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: re: What to do about multiple observations for one individual in one same period in a panel
Date   Sun, 19 Jul 2009 20:36:59 -0400

<>
Adrian said

I am interested in looking at the effect of domestic macroeconomic conditions in a given country (e.g., GDP growth, inflation, the level of reserves...) as well as credit and liquidity conditions abroad (e.g., the US interest rate, volatility and liquidity indices...) on the yield spread of bonds issued by that country. The yield spread is a measured as the return of the bond minus the return of a "safe" or riskless benchmark, such as a US T-bill or bond. SO in my data, I have countries like Mexico, Brazil, Korea... that decide whether they want to issue bonds (or not) in a given period (self-selection)... but when they do participate in financial markets and decide to issue, they may actually issue multiple bonds, each with a different spread (dependent variable) and other individual characteristics (e.g., total amount issued, maturity of the bond, currency of issue, etc.) but facing the same macro conditions both domestically and abroad (i.e., in the same time period, the GDP growth, the inflation rate, the US interest rate, ... are all the same). Given the nature of my question, do you recommend I look into the nested panels literature? I have never seen these models before and so I have no idea what they do. If you think that would be a good estimation procedure, are there any references you could recommend?

With due respect to Jeph's suggestion of nesting issuances within country-years, I don't think that makes much sense from an economic standpoint. A sovereign borrower presumably has a target amount of funds to be raised in each period, and if they choose to issue securities they may do so (on their underwriters' recommendations) using several issues that appeal to different segments of the loanable funds market. In that sense I would consider the total amount borrowed and the weighted average yield spread and tenor to be more sensible measures in a traditional panel context. The individual issues cannot be considered independent, as depending on timing and information flow the lenders who purchase the July 20 issue are certainly taking the borrower's issuance of another bond on July 10 into account when they judge the appropriate risk premium. So I would come up with a way to collapse the data into country-quarter format. I do think that the number of issues per quarter may be worth noting, as a larger number of issues would seem to suggest a broader acceptance of the borrower in the market for sovereign lending.
Some of the time, I do play the role of a financial economist... e.g.
http://ideas.repec.org/a/bla/ecinqu/v47y2009i2p216-225.html

Kit


Kit Baum   |   Boston College Economics & DIW Berlin   |   http://ideas.repec.org/e/pba1.html
An Introduction to Stata Programming | http://www.stata-press.com/books/isp.html
   An Introduction to Modern Econometrics Using Stata  |   http://www.stata-press.com/books/imeus.html



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