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PANEL DATA MODELS WITH FINITE NUMBER OF MULTIPLE EQUILIBRIA

Published online by Cambridge University Press:  07 October 2009

Jinyong Hahn  and
Hyungsik Roger Moon
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Abstract

We study a nonlinear panel data model in which the fixed effects are assumed to have finite support. The fixed effects estimator is known to have the incidental parameters problem. We contribute to the literature by making a qualitative observation that the incidental parameters problem in this model may not be not as severe as in the conventional case. Because fixed effects have finite support, the probability of correctly identifying the fixed effect converges to one even when the cross sectional dimension grows as fast as some exponential function of the time dimension. As a consequence, the finite sample bias of the fixed effects estimator is expected to be small.

Type
Research Article
Information
Econometric Theory , Volume 26 , Issue 3 , June 2010 , pp. 863 - 881
Copyright
Copyright © Cambridge University Press 2009

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Footnotes

We are thankful to Guido Kuersteiner and two referees for helpful comments. We also thank Timothy Derdenger for proofreading.

References

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