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Robust linear static panel data models using ε-contamination

Guy Lacroix (), Badi Baltagi (), Georges Bresson () and Anoop Chaturvedi ()

CIRANO Working Papers from CIRANO

Abstract: The paper develops a general Bayesian framework for robust linear static panel data models using ε-contamination. A two-step approach is employed to derive the conditional type-II maximum likelihood (ML-II) posterior distribution of the coefficients and individual effects.The ML-II posterior densities are weighted averages of the Bayes estimator under a base prior and the data-dependent empirical Bayes estimator. Two-stage and three stage hierarchy estimators are developed and their finite sample performance is investigated through a series of Monte Carlo experiments. These include standard random effects as well as Mundlak-type, Chamberlain-type and Hausman-Taylor-type models. The simulation results underscore the relatively good performance of the three-stage hierarchy estimator. Within a single theoretical framework, our Bayesian approach encompasses a variety of specications while conventional methods require separate estimators for each case. We illustrate the performance of our estimator relative to classic panel estimators using data on earnings and crime.

Keywords: ε-contamination; hyper g-priors; type-II maximum likelihood posterior density; panel data; robust Bayesian estimator; three-stage hierarchy. (search for similar items in EconPapers)
JEL-codes: C11 C23 C26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2015-07-15
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http://www.cirano.qc.ca/files/publications/2015s-30.pdf

Related works:
Working Paper: Robust Linear Static Panel Data Models Using ε-Contamination (2017) Downloads
Working Paper: Robust Linear Static Panel Data Models Using ε-Contamination (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2015s-30

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