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BIAS REDUCTION FOR DYNAMIC NONLINEAR PANEL MODELS WITH FIXED EFFECTS

Published online by Cambridge University Press:  31 May 2011

Jinyong Hahn  and
Guido Kuersteiner
Jinyong Hahn
Affiliation:
UCLA
Guido Kuersteiner*
Affiliation:
Georgetown University
*
*Address correspondence to Guido Kuersteiner, Georgetown University, Department of Economics, ICC 572, 37th and O Streets, Washington, D.C. 20057; e-mail: gk232@georgetown.edu
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Abstract

The fixed effects estimator of panel models can be severely biased because of well-known incidental parameter problems. It is shown that this bias can be reduced in nonlinear dynamic panel models. We consider asymptotics where n and T grow at the same rate as an approximation that facilitates comparison of bias properties. Under these asymptotics, the bias-corrected estimators we propose are centered at the truth, whereas fixed effects estimators are not. We discuss several examples and provide Monte Carlo evidence for the small sample performance of our procedure.

Type
ARTICLES
Information
Econometric Theory , Volume 27 , Issue 6 , December 2011 , pp. 1152 - 1191
Copyright
Copyright © Cambridge University Press 2011

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