Model Selection in the Presence of Incidental Parameters

Yoonseok Lee and Peter Phillips

No 159, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper considers model selection in nonlinear panel data models where incidental parameters or large-dimensional nuisance parameters are present. Primary interest typically centers on selecting a model that best approximates the underlying structure involving parameters that are common within the panel after concentrating out the incidental parameters. It is well known that conventional model selection procedures are often inconsistent in panel models and this can be so even without nuisance parameters (Han et al, 2012). Modifications are then needed to achieve consistency. New model selection information criteria are developed here that use either the Kullback-Leibler information criterion based on the profile likelihood or the Bayes factor based on the integrated likelihood with the robust prior of Arellano and Bonhomme (2009). These model selection criteria impose heavier penalties than those associated with standard information criteria such as AIC and BIC. The additional penalty, which is datadependent, properly reflects the model complexity arising from the presence of incidental parameters. A particular example is studied in detail involving lag order selection in dynamic panel models with fixed individual effects. The new criteria are shown to control for over/underselection probabilities in these models and lead to consistent order selection criteria.

Keywords: (Adaptive) model selection; incidental parameters; profile likelihood; Kullback-Leibler information; Bayes factor; integrated likelihood; robust prior; model complexity; fixed effects; lag order (search for similar items in EconPapers)
JEL-codes: C23 C52 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-10
New Economics Papers: this item is included in nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://surface.syr.edu/cpr/385/ (application/pdf)

Related works:
Journal Article: Model selection in the presence of incidental parameters (2015)
Working Paper: Model Selection in the Presence of Incidental Parameters (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:159

Access Statistics for this paper

More papers in Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University 426 Eggers Hall, Syracuse, New York USA 13244-1020. Contact information at EDIRC.
Bibliographic data for series maintained by Katrina Fiacchi ().