A Robust Hausman–Taylor Estimator

Badi Baltagi and Georges Bresson

A chapter in Essays in Honor of Jerry Hausman, 2012, pp 175-214 from Emerald Group Publishing Limited

Abstract: This chapter suggests a robust Hausman and Taylor (1981), hereafter HT, estimator that deals with the possible presence of outliers. This entails two modifications of the classical HT estimator. The first modification uses the Bramati and Croux (2007) robust Within MS estimator instead of the Within estimator in the first stage of the HT estimator. The second modification uses the robust Wagenvoort and Waldmann (2002) two-stage generalized MS estimator instead of the 2SLS estimator in the second step of the HT estimator. Monte Carlo simulations show that, in the presence of vertical outliers or bad leverage points, the robust HT estimator yields large gains in MSE as compared to its classical Hausman–Taylor counterpart. We illustrate this robust version of the HT estimator using an empirical application.

Keywords: Bad leverage points; Hausman–Taylor; panel data; two-stage generalized MS estimator; vertical outliers (search for similar items in EconPapers)
Date: 2012
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Working Paper: A Robust Hausman-Taylor Estimator (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(2012)0000029012

DOI: 10.1108/S0731-9053(2012)0000029012

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