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Fixed Effects Bias in Panel Data Estimators

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Author Info
Buddelmeyer, Hielke () (Melbourne Institute of Applied Economic and Social Research)
Jensen, Paul H. () (University of Melbourne)
Oguzoglu, Umut () (University of Manitoba)
Webster, Elizabeth () (University of Melbourne)

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Abstract

Since little is known about the degree of bias in estimated fixed effects in panel data models, we run Monte Carlo simulations on a range of different estimators. We find that Anderson-Hsiao IV, Kiviet’s bias-corrected LSDV and GMM estimators all perform well in both short and long panels. However, OLS outperforms the other estimators when the following holds: the cross-section is small (N = 20), the time dimension is short (T = 5) and the coefficient on the lagged dependent variable is large (γ = 0.8).

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3487.

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Date of creation: May 2008
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Handle: RePEc:iza:izadps:dp3487

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Related research
Keywords: fixed effects; panel data; LSDV; dynamic model;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
E00 - Macroeconomics and Monetary Economics - - General - - - General

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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.:
  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October. [Downloadable!] (restricted)
  3. Murdock, Jennifer, 2006. "Handling unobserved site characteristics in random utility models of recreation demand," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 1-25, January. [Downloadable!] (restricted)
  4. Bulkley, George & Harris, Richard D. F. & Herrerias, Renata, 2004. "Why does book-to-market value of equity forecast cross-section stock returns?," International Review of Financial Analysis, Elsevier, vol. 13(2), pages 153-160. [Downloadable!] (restricted)
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This page was last updated on 2009-11-23.

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