Fixed Effects Bias in Panel Data Estimators
9 Pages Posted: 23 May 2008
Abstract
Since little is known about the degree of bias in estimated fixed effects in panel data models, we run Monte Carlo simulations on a range of different estimators. We find that Anderson-Hsiao IV, Kiviet's bias-corrected LSDV and GMM estimators all perform well in both short and long panels. However, OLS outperforms the other estimators when the following holds: the cross-section is small (N = 20), the time dimension is short (T = 5) and the coefficient on the lagged dependent variable is large (γ = 0.8).
Keywords: dynamic model, LSDV, panel data, fixed effects
JEL Classification: C23, O11, E00
Suggested Citation: Suggested Citation
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