Jinyong Hahn Whitney Newey () (Institute for Fiscal Studies and Massachusetts Institute of Technology)
Abstract
Fixed effects estimators of panel models can be severely biased because of the well-known incidental parameters problem. We show that this bias can be reduced by using a panel jackknife or an analytical bias correction motivated by large T. We give bias corrections for averages over the fixed effects, as well as model parameters. We find large bias reductions from using these approaches in examples. We consider asymptotics where T grows with n, as an approximation to the properties of the estimators in econometric applications. We show that if T grows at the same rate as n the fixed effects estimator is asymptotically biased, so that asymptotic confidence intervals are incorrect, but that they are correct for the panel jackknife. We show T growing faster than n1/3 suffices for correctness of the analytic correction, a property we also conjecture for the jackknife.
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Publisher Info
Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number
CWP17/03.
Length: 20 pp. Date of creation: Oct 2003 Date of revision: Handle: RePEc:ifs:cemmap:17/03
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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.:
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.
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