Estimating Dynamic Panel Models: Backing Out the Nickell Bias

25 Pages Posted: 7 Nov 2017

See all articles by Jerry A. Hausman

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Maxim Pinkovskiy

Federal Reserve Bank of New York

Date Written: 2017-10-01

Abstract

We propose a novel estimator for the dynamic panel model, which solves the failure of strict exogeneity by calculating the bias in the first-order conditions as a function of the autoregressive parameter and solving the resulting equation. We show that this estimator performs well as compared with approaches in current use. We also propose a general method for including predetermined variables in fixed-effects panel regressions that appears to perform well.

Keywords: dynamic panel data, bias correction, econometrics

JEL Classification: C2, C23, C26

Suggested Citation

Hausman, Jerry A. and Pinkovskiy, Maxim, Estimating Dynamic Panel Models: Backing Out the Nickell Bias (2017-10-01). FRB of NY Staff Report No. 824. Available at SSRN: https://ssrn.com/abstract=3066691

Jerry A. Hausman (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Maxim Pinkovskiy

Federal Reserve Bank of New York ( email )

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