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Likelihood inference in an Autoregression with fixed effects

  • Geert Dhaene

    (KU Leuven)

  • Koen Jochmans

    (Département d'économie)

We calculate the bias of the profile score for the regression coefficients in a multistratum autoregressive model with stratum-specific intercepts. The bias is free of incidental parameters. Centering the profile score delivers an unbiased estimating equation and, upon integration, an adjusted profile likelihood. A variety of other approaches to constructing modified profile likelihoods are shown to yield equivalent results. However, the global maximizer of the adjusted likelihood lies at infinity for any sample size, and the adjusted profile score has multiple zeros. We argue that the parameters are local maximizers inside or on an ellipsoid centered at the maximum likelihood estimator.

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File URL: http://spire.sciencespo.fr/hdl:/2441/dambferfb7dfprc9m052g20qh/resources/dp2013-07dhaenejochmans.pdf
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Paper provided by Sciences Po Departement of Economics in its series Sciences Po Economics Discussion Papers with number 2013-07.

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Date of creation: Jan 2013
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Handle: RePEc:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m052g20qh
Contact details of provider: Web page: http://econ.sciences-po.fr/
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  1. Manuel Arellano & Stéphane Bonhomme, 2007. "Robust priors in nonlinear panel data models," CeMMAP working papers CWP07/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Lancaster, Tony, 2002. "Orthogonal Parameters and Panel Data," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 647-66, July.
  3. Arellano, M., 2001. "Discrete Choices with Panel Data," Papers 0101, Centro de Estudios Monetarios Y Financieros-.
  4. Sargan, J D, 1983. "Identification and Lack of Identification," Econometrica, Econometric Society, vol. 51(6), pages 1605-33, November.
  5. N. Sartori, 2003. "Modified profile likelihoods in models with stratum nuisance parameters," Biometrika, Biometrika Trust, vol. 90(3), pages 533-549, September.
  6. Tiemen Woutersen & Marcel Voia, 2002. "Adaptive Estimation of the Dynamic Linear Model with Fixed Effects," UWO Department of Economics Working Papers 200210, University of Western Ontario, Department of Economics.
  7. Bester, C. Alan & Hansen, Christian, 2009. "A Penalty Function Approach to Bias Reduction in Nonlinear Panel Models with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(2), pages 131-148.
  8. Bun M.J.G. & Carree M.A., 2002. "Bias-corrected estimation in dynamic panel data models," Research Memorandum 025, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  9. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  10. Tony Lancaster, 2002. "Orthogonal Parameters and Panel Data," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 647-666.
  11. Tiemen Woutersen, 2002. "Robustness against Incidental Parameters," UWO Department of Economics Working Papers 20028, University of Western Ontario, Department of Economics.
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