Robust Linear Static Panel Data Models Using Ε-Contamination

75 Pages Posted: 6 Dec 2014

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University - Maxwell School of Citizenship and Public Affairs; IZA Institute of Labor Economics; Syracuse University - Center for Policy Research

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II

Anoop Chaturvedi

University of Allahabad

Guy Lacroix

Université Laval - Département d'Économique; IZA Institute of Labor Economics

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Abstract

The paper develops a general Bayesian framework for robust linear static panel data models using ε-contamination. A two-step approach is employed to derive the conditional type-II maximum likelihood (ML-II) posterior distribution of the coefficients and individual effects. The ML-II posterior densities are weighted averages of the Bayes estimator under a base prior and the data-dependent empirical Bayes estimator. Two-stage and three stage hierarchy estimators are developed and their finite sample performance is investigated through a series of Monte Carlo experiments. These include standard random effects as well as Mundlak-type, Chamberlain-type and Hausman-Taylor-type models. The simulation results underscore the relatively good performance of the three-stage hierarchy estimator. Within a single theoretical framework, our Bayesian approach encompasses a variety of specifications while conventional methods require separate estimators for each case. We illustrate the performance of our estimator relative to classic panel estimators using data on earnings and crime.

Keywords: hyper g-priors, type-II maximum likelihood posterior density, panel data, robust Bayesian estimator, three-stage hierarchy

JEL Classification: C11, C23, C26

Suggested Citation

Baltagi, Badi H. and Bresson, Georges and Chaturvedi, Anoop and Lacroix, Guy, Robust Linear Static Panel Data Models Using Ε-Contamination. IZA Discussion Paper No. 8661, Available at SSRN: https://ssrn.com/abstract=2534689

Badi H. Baltagi (Contact Author)

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
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IZA Institute of Labor Economics

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Syracuse University - Center for Policy Research ( email )

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United States
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HOME PAGE: http://www.maxwell.syr.edu/cpr_about.aspx?id=6442451316

Georges Bresson

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

Anoop Chaturvedi

University of Allahabad ( email )

Department of Economics
University of Allahabad
Allahabad, PA 211002
India

Guy Lacroix

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
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418-656-7798 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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