
Contents
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4.1 Introduction 4.1 Introduction
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4.2 Formulations and Problems of Interest 4.2 Formulations and Problems of Interest
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4.3 Estimating ρ with Incidental Parameters 4.3 Estimating ρ with Incidental Parameters
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4.3.1 Individual Fixed Effects: α(λi, ft) = λi 4.3.1 Individual Fixed Effects: α(λi, ft) = λi
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4.3.1.1 Explaining the Nickell Bias 4.3.1.1 Explaining the Nickell Bias
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4.3.1.2 Panels with Fixed T: First Differencing and Instrumental Variables 4.3.1.2 Panels with Fixed T: First Differencing and Instrumental Variables
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4.3.1.3 When T is Large 4.3.1.3 When T is Large
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4.3.1.4 Alternative Bias Correction Method 4.3.1.4 Alternative Bias Correction Method
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4.3.2 Additive Individual Effects and Time Effects: α(λi, ft) = λi + ft 4.3.2 Additive Individual Effects and Time Effects: α(λi, ft) = λi + ft
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4.3.3 Interactive Fixed Effects: 4.3.3 Interactive Fixed Effects:
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4.3.3.1 Quasi-Differencing Approach 4.3.3.1 Quasi-Differencing Approach
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4.3.3.2 Principal Component Approach with Joint Asymptotics 4.3.3.2 Principal Component Approach with Joint Asymptotics
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4.3.4 Incidental Trends: δ(λi, ft) or α(λi, ft) = λi0 + λi1t) 4.3.4 Incidental Trends: δ(λi, ft) or α(λi, ft) = λi0 + λi1t)
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4.3.4.1 Weakly Serially Correlated Case 4.3.4.1 Weakly Serially Correlated Case
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4.3.4.2 Strongly Serially Correlated Case 4.3.4.2 Strongly Serially Correlated Case
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4.4 Testing for Unit Roots with Incidental Parameters 4.4 Testing for Unit Roots with Incidental Parameters
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4.5 Nonlinear Dynamic Panels 4.5 Nonlinear Dynamic Panels
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4.5.1 Concentrated Likelihood Approach 4.5.1 Concentrated Likelihood Approach
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4.5.2 Integrated Likelihood Approach 4.5.2 Integrated Likelihood Approach
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4.6 Order Selection in Dynamic Panels 4.6 Order Selection in Dynamic Panels
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4.7 Conclusions 4.7 Conclusions
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Acknowledgments Acknowledgments
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Notes Notes
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References References
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4 Incidental Parameters and Dynamic Panel Modeling
Get accessProfessor in the Department of Economics at University of Southern California and at Yonsei University, South Korea
Professor in the Department of Economics at University of Montreal, Canada
Peter C. B. Phillips, Sterling Professor of Economics and Professor of Statistics, Yale University; Alumni Distinguished Professor of Economics, University of Auckland; Adjunct professor, University of Southampton and Singapore Management University; Co-Director, Centre for Financial Econometrics, Singapore Management University.
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Published:05 May 2015
Cite
Extract
Introduction
Panel data offers great opportunities for empirical research throughout the social and business sciences, as such data has done for many decades in longitudinal medical studies. In economics and business, just as in medicine, there is often intense interest in the effects of policy measures or treatments on individual consumer and firm behavior over time. The pooling of data records across wide panels of individuals has the potential to deliver substantial econometric power in estimation through cross-section averaging to sharpen estimates of common response patterns.
With these great opportunities for studying individual behavior come many challenges. The chapter focuses on one of these challenges—the role and effects of incidental parameters that capture the idiosyncratic features of individual entities within a panel. Adding a new individual to a panel brings new idiosyncratic elements to be explained in the data just as it also brings observations that enhance the power of cross-section averaging for the common elements of behavior. Exploring the effects of such additions is the subject of this chapter.
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