A Correction Function Approach to Solve the Incidental Parameter Problem
AbstractFollowing Lancaster (2002), we propose a strategy to solve the incidental parameter problem. The method is demonstrated under a simple panel Poisson count model. We also extend the strategy to accomodate cases when information orthogonality is unavailable, such as the linear AR(p) panel model. For the AR(p) model, there exists a correction function to fix the incidental parameter problem when the model is stationary with strictly exogenous regressors. MCMC algorithms are developed for parameter estimation and model comparison. The results based on the simulated data sets suggest that our method could achieve consistency in both parameter estimation and model selection.
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Bibliographic InfoPaper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2009/6.
Length: 44 pages
Date of creation: Mar 2009
Date of revision:
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dynamic panel data model with fixed effect; incidental parameter problem; consistency in estimation; model selection; Bayesian model averaging; Markov chain Monte Carlo (MCMC);
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-28 (All new papers)
- NEP-CMP-2009-03-28 (Computational Economics)
- NEP-ECM-2009-03-28 (Econometrics)
- NEP-ORE-2009-03-28 (Operations Research)
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