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Model selection for panel data models with fixed effects: a simulation study

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  • Minchul Yum

Abstract

This study considers model selection criteria, such as the Akaike’s Information Criterion (AIC), the corrected Akaike’s Information Criterion (AIC$$_C$$ C) and the Bayesian Information Criterion (BIC), for panel data models with fixed effects. Applying these information criteria to fixed effects panel models is not a trivial matter due to the incidental parameter problem that might adversely affect their practical performance, especially when it comes to short panel data. Monte Carlo experiments suggest that the information criteria are quite successful in selecting the true model. In particular, the AIC$$_C$$ C and the AIC operate successfully unless a time dimension is extremely small.

Suggested Citation

  • Minchul Yum, 2022. "Model selection for panel data models with fixed effects: a simulation study," Applied Economics Letters, Taylor & Francis Journals, vol. 29(19), pages 1776-1783, November.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:19:p:1776-1783
    DOI: 10.1080/13504851.2021.1962505
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    Cited by:

    1. Katarzyna Twarowska-Mól, 2023. "Factors influencing the choice of the invoicing currency in international trade: Panel data analysis for 55 countries," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(1), pages 153-183, March.
    2. Cheolbeom Park, 2023. "Optimal salary inequality for team performance: evidence from National Football League data," Applied Economics, Taylor & Francis Journals, vol. 55(24), pages 2773-2787, May.

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