REDUCING BIAS OF MLE IN A DYNAMIC PANEL MODEL

Jinyong Hahn and Hyungsik Roger Moon

Econometric Theory, 2006, vol. 22, issue 03, pages 499-512

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.

Date: 2006

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Persistent link: http://EconPapers.repec.org/RePEc:cup:etheor:v:22:y:2006:i:03:p:499-512_06

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