Duration Models with Time-Varying Coefficients

摘要

An alternative form of the proportional hazard model is proposed. It allows one to introduce correlation between exit rates at the same (calendar) time for different individuals. This correlation is explained by assuming a changing macro environment that affects all individuals in a similar way. The assumption that the effect is proportional to the systematic part of the hazard function makes it possible to estimate the parameters of the latter without parametrizing the time effect. One can, in the context of the model, still allow for, and estimate, duration effects. These should be parametrized. These modifications to the original Cox model are possible by reversing the roles of duration and calendar time. It is argued that flexibility with respect to the effects of these macro processes is of particular relevance in economic models. An example using Dutch data on labor market behavior illustrates the idea that ignoring calendar time effects can have severe consequences for the estimation of duration dependence.