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A Likelihood-Based Approximate Solution To The Incidental Parameter Problem In Dynamic Nonlinear Models With Multiple Effects

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Author Info

  • Manuel Arellano

    ()

  • Jinyong Hahn

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

We discuss a modified objective function strategy to obtain estimators without bias to order 1/T in nonlinear dynamic panel models with multiple effects. Estimation proceeds from a bias corrected objective function relative to some target infeasible criterion. We consider a determinant based approach for likelihood settings, and a trace based approach, which is not restricted to the likelihood setup. Both approaches depend exclusively on the Hessian and the outer product of the scores of the fixed effects. They produce simple and transparent corrections even in models with multiple effects. We analyze the asymptotic properties of both types of estimators when n and T grow at the same rate, and show that they are asymptotically normal and centered at the truth. Our strategy is to develop a theory for general bias corrected estimating equations, so that we can obtain asymptotic results for a specific bias correction method using the first order conditions.

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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2006_0613.

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Date of creation: Dec 2006
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Handle: RePEc:cmf:wpaper:wp2006_0613

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Related research

Keywords: Nonlinear panel data; fixed effects; bias reduction.;

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References

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  1. Hahn, Jinyong & Kuersteiner, Guido, 2011. "Bias Reduction For Dynamic Nonlinear Panel Models With Fixed Effects," Econometric Theory, Cambridge University Press, vol. 27(06), pages 1152-1191, December.
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Cited by:
  1. Geert Dhaene & Koen Jochmans, 2010. "Split-panel jackknife estimation of fixed-effect models," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  2. Laura Hospido, 2007. "Modelling heterogeneity and dynamics in the volatility of individual wages," Banco de Espa�a Working Papers 0738, Banco de Espa�a.
  3. Geert Dhaene & Koen Jochmans, 2011. "Profile-score Adjustements for Nonlinearfixed-effect Models," Sciences Po publications info:hdl:2441/eu4vqp9ompq, Sciences Po.
  4. Ivan Fernandez-Val, 2007. "Fixed Effects Estimation of Structural Parameters and Marginal Effects in Panel Probit Models," Boston University - Department of Economics - Working Papers Series WP2007-009, Boston University - Department of Economics.
  5. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0031f620 is not listed on IDEAS
  6. Lee, Yoonseok, 2012. "Bias in dynamic panel models under time series misspecification," Journal of Econometrics, Elsevier, vol. 169(1), pages 54-60.
  7. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS

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