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REDUCING BIAS OF MLE IN A DYNAMIC PANEL MODEL

Published online by Cambridge University Press:  15 March 2006

Jinyong Hahn  and
Hyungsik Roger Moon
Jinyong Hahn
Affiliation:
UCLA
Hyungsik Roger Moon
Affiliation:
University of Southern California
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Abstract

This paper investigates a simple dynamic linear panel regression model with both fixed effects and time effects. Using “large n and large T” asymptotics, we approximate the distribution of the fixed effect estimator of the autoregressive parameter in the dynamic linear panel model and derive its asymptotic bias. We find that the same higher order bias correction approach proposed by Hahn and Kuersteiner (2002, Econometrica 70, 1639–1659) can be applied to the dynamic linear panel model even when time specific effects are present.We thank Peter Phillips and three anonymous referees for helpful comments. The first author gratefully acknowledges financial support from NSF grant SES-0313651. The second author appreciates the Faculty Development Awards of USC for research support.

Type
MISCELLANEA
Information
Econometric Theory , Volume 22 , Issue 3 , June 2006 , pp. 499 - 512
Copyright
© 2006 Cambridge University Press

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References

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