Second-order corrected likelihood for nonlinear panel models with fixed effects

Geert Dhaene and Yutao Sun

Journal of Econometrics, 2021, vol. 220, issue 2, 227-252

Abstract: We propose a second-order correction for nonlinear fixed-effect panel models. The correction is made via the log-likelihood function. It removes the two leading terms of the bias of the log-likelihood that arises from estimating the fixed effects. Maximizing the corrected likelihood gives a second-order bias-corrected estimator, with bias OT−3, where T is the number of time periods. The corrected likelihood also gives second-order corrected test statistics. The correction applies to general nonlinear fixed-effect models with independent observations. The bias correction properties are confirmed in simulations for binary-choice models.

Keywords: Nonlinear panel data models; Fixed effects; Incidental parameter problem; Bias correction (search for similar items in EconPapers)
JEL-codes: C23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:220:y:2021:i:2:p:227-252

DOI: 10.1016/j.jeconom.2020.04.001

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