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Estimating dynamic panel models: backing out the Nickell Bias

Authors: Jerry Hausman and Maxim L. Pinkovskiy
Date: 30 November 2017
Type: cemmap Working Paper, CWP53/17
DOI: 10.1920/wp.cem.2017.5317


We propose a new 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. The estimator does well in a wide variety of situations where other estimators do not perform well: stationary initial condition, predetermined but not strictly exogenous regressors, and the presence of correlation between the error terms and the fixed effects. We also propose a general method for including predetermined variables infixed-effects panel regressions.

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