Hi everyone,

I am interested in estimating this type of random effects panel:

y_it = x'_it * beta + u_it + e_it

u_it = rho * u_it-1 + d_it        rho belongs to (-1, 1)

where:

u and e are independent and normally zero-mean distributed.

d is also independently normally zero-mean distributed.

So, I want random effects for group i to be correlated in t, following an
AR(1) process.

I am using the mle command, including correlation=corAR1:

lme(asis~prec+pobl+gola+entr,random=~1|codi,correlation=corAR1(0.8
,form=~temp|codi)))

i = codi
t = temp

I am not sure whether the AR(1) process is applied to the random effects
(u_it) or the error term (e_it)... Any idea?

Thanks.

G



-- 
Guillermo Villa

Universidad Carlos III de Madrid
Business Economics Department
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