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Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both n and T Are Large
Author(s) -
Hahn Jinyong,
Kuersteiner Guido
Publication year - 2002
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/1468-0262.00344
Subject(s) - panel data , inference , fixed effects model , econometrics , mathematics , economics , mathematical economics , fixed point , computer science , mathematical analysis , artificial intelligence
We consider a dynamic panel AR(1) model with fixed effects when both "n" and "T" are large. Under the "T fixed n large" asymptotic approximation, the maximum likelihood estimator is known to be inconsistent due to the well-known incidental parameter problem. We consider an alternative asymptotic approximation where "n" and "T" grow at the same rate. It is shown that, although the MLE is asymptotically biased, a relatively simple fix to the MLE results in an asymptotically unbiased estimator. The bias corrected MLE is shown to be asymptotically efficient by a Hajek type convolution theorem.