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Bias corrections for probit and logit models with two-way fixed effects

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  • Mario Cruz-Gonzalez

    (Boston University)

  • Iván Fernández-Val

    (Boston University)

  • Martin Weidner

    (University College London)

Abstract

In this article, we present the user-written commands probitfe and logitfe, which fit probit and logit panel-data models with individual and time unobserved effects. Fixed-effects panel-data methods that estimate the unobserved effects can be severely biased because of the incidental parameter problem (Ney- man and Scott, 1948, Econometrica 16: 1–32). We tackle this problem using the analytical and jackknife bias corrections derived in Fern ́andez-Val and Weidner (2016, Journal of Econometrics 192: 291–312) for panels where the two dimensions (N and T) are moderately large. We illustrate the commands with an empirical application to international trade and a Monte Carlo simulation calibrated to this application.

Suggested Citation

  • Mario Cruz-Gonzalez & Iván Fernández-Val & Martin Weidner, 2017. "Bias corrections for probit and logit models with two-way fixed effects," Stata Journal, StataCorp LLC, vol. 17(3), pages 517-545, September.
    • Handle: RePEc:tsj:stataj:y:17:y:2017:i:3:p:517-545
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