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Fixed Effect Estimation of Large T Panel Data Models

Fernandez-Val, I; Weidner, M; (2018) Fixed Effect Estimation of Large T Panel Data Models. The Annual Review of Economics , 10 pp. 109-138. 10.1146/annurev-economics-080217-053542. Green open access

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Abstract

This article reviews recent advances in fixed effect estimation of panel data models for long panels, where the number of time periods is relatively large. We focus on semiparametric models with unobserved individual and time effects, where the distribution of the outcome variable conditional on covariates and unobserved effects is specified parametrically, while the distribution of the unobserved effects is left unrestricted. Compared to existing reviews on long panels (Arellano & Hahn 2007; a section in Arellano & Bonhomme 2011) we discuss models with both individual and time effects, split-panel Jackknife bias corrections, unbalanced panels, distribution and quantile effects, and other extensions. Understanding and correcting the incidental parameter bias caused by the estimation of many fixed effects is our main focus, and the unifying theme is that the order of this bias is given by the simple formula p/n for all models discussed, with p the number of estimated parameters and n the total sample size.

Type: Article
Title: Fixed Effect Estimation of Large T Panel Data Models
Open access status: An open access version is available from UCL Discovery
DOI: 10.1146/annurev-economics-080217-053542
Publisher version: https://doi.org/10.1146/annurev-economics-080217-0...
Language: English
Additional information: Submitted version: Posted with permission from the Annual Review of Economics, Volume 10 © by Annual Reviews, http://www.annualreviews.org
Keywords: Panel data, fixed effects, incidental parameter problem, bias correction, unobserved heterogeneity, nonlinear models.
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/10044077
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