Estimating dynamic panel models: backing out the Nickell Bias

Jerry Hausman and Maxim L. Pinkovskiy

No 53/17, CeMMAP working papers from Institute for Fiscal Studies

Abstract: We propose a new estimator for the dynamic panel model, which solves the failure of strict exogeneity by calculating the bias in the first-order conditions as a function of the autoregressive parameter and solving the resulting equation. The estimator does well in a wide variety of situations where other estimators do not perform well: stationary initial condition, predetermined but not strictly exogenous regressors, and the presence of correlation between the error terms and the fixed effects. We also propose a general method for including predetermined variables infixed-effects panel regressions.

Date: 2017-11-30
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Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:53/17

DOI: 10.1920/wp.cem.2017.5317

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