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Modified maximum likelihood estimation of Tobit models with fixed effects: theory and an application to earnings equations

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Author Info
Gabriel Jiménez Zambrano (Banco de España)
Abstract

This paper starts from the orthogonalization method proposed by Cox and Reid which is aplied to the Tobit model panel for data with fixed effects. Neyman and Scott showed that, generally, the maximum likelihood estimator is inconsistent (the incidental parameter problem). The methodology explained here recovers the use of the log-likelihood function to solve this problem taking advantage of the time-series dimension of panel data. For the Tobit model we show when is it possible to recover the orthogonal parameters, and study the characteristics of the estimators obtained with simulation methods. Also, an illustration for earnings equations has been performed.

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File URL: ftp://ftp.funep.es/InvEcon/paperArchive/Sep2005/v29i3a5.pdf
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Publisher Info
Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 29 (2005)
Issue (Month): 3 (September)
Pages: 575-607
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Handle: RePEc:iec:inveco:v:29:y:2005:i:3:p:575-607

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Postal: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain
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Related research
Keywords: Orthogonal parameters; modified profile likelihood; panel data; Tobit model;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Arellano, Manuel & Honore, Bo, 2001. "Panel data models: some recent developments," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 53, pages 3229-3296 Elsevier. [Downloadable!] (restricted)
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  2. Heckman, James J & Macurdy, Thomas E, 1980. "A Life Cycle Model of Female Labour Supply," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 47-74, January. [Downloadable!] (restricted)
  3. Manuel Arellano, 2003. "Discrete choices with panel data," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 423-458, September. [Downloadable!]
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