Bias Corrections for Probit and Logit Models with Two-way Fixed Effects

By M. Cruz-Gonzalez, Iv'an Fern'andez-Val, Martin P. Weidner. 2016

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In this article, we present the user-written commands probitfe and logitfe, which fit probit and logit panel-data models with individual and time unobserved effects. Fixed-effects panel-data methods that estimate the unobserved effects can be severely biased because of the incidental parameter problem (Neyman and Scott, 1948, Econometrica 16: 1–32). We tackle this problem using the analytical and jackknife bias corrections derived in Fernández-Val and Weidner (2016, Journal of Econometrics 192: 291–312) for panels where the two dimensions (N and T) are moderately large. We illustrate the commands with an empirical application to international trade and a Monte Carlo simulation calibrated to this application.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/39ff88f81bf2c659229d467c13efbe33e757317f