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Jackknife and analytical bias reduction for nonlinear panel models

Author

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  • Jinyong Hahn

    (Institute for Fiscal Studies)

  • Whitney K. Newey

    (Institute for Fiscal Studies and MIT)

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.

Suggested Citation

  • Jinyong Hahn & Whitney K. Newey, 2003. "Jackknife and analytical bias reduction for nonlinear panel models," CeMMAP working papers CWP17/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:cemmap:17/03
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    File URL: http://cemmap.ifs.org.uk/wps/cwp0317.pdf
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    References listed on IDEAS

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    1. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318, Elsevier.
    2. 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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    6. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
    7. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
    8. Rilstone, Paul & Srivastava, V. K. & Ullah, Aman, 1996. "The second-order bias and mean squared error of nonlinear estimators," Journal of Econometrics, Elsevier, vol. 75(2), pages 369-395, December.
    9. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
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    11. Tiemen Woutersen, 2002. "Robustness against Incidental Parameters," University of Western Ontario, Departmental Research Report Series 20028, University of Western Ontario, Department of Economics.
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