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A correction function approach to solve the incidental parameter problem

Li, Guangjie and Leon-Gonzalez, Roberto 2009. A correction function approach to solve the incidental parameter problem. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University. Available at: http://business.cardiff.ac.uk/sites/default/files/...

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Abstract

Following Lancaster (2002), we propose a strategy to solve the incidental parameter problem. The method is demonstrated under a simple panel Poisson count model. We also extend the strategy to accomodate cases when information orthogonality is unavailable, such as the linear AR(p) panel model. For the AR(p) model, there exists a correction function to fix the incidental parameter problem when the model is stationary with strictly exogenous regressors. MCMC algorithms are developed for parameter estimation and model comparison. The results based on the simulated data sets suggest that our method could achieve consistency in both parameter estimation and model selection.

Item Type: Monograph (Working Paper)
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HA Statistics
Uncontrolled Keywords: dynamic panel data model with fixed effect, incidental parameter problem, consistency in estimation, model selection, Bayesian model averaging, Markov chain Monte Carlo (MCMC)
Publisher: Cardiff University
Date of First Compliant Deposit: 30 March 2016
Last Modified: 04 Jun 2017 04:41
URI: http://orca.cf.ac.uk/id/eprint/42833

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