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LIKELIHOOD INFERENCE IN AN AUTOREGRESSION WITH FIXED EFFECTS

Published online by Cambridge University Press:  11 May 2015

Geert Dhaene  and
Koen Jochmans
Geert Dhaene*
Affiliation:
University of Leuven
Koen Jochmans*
Affiliation:
Sciences Po
*
*Address correspondence to Geert Dhaene, University of Leuven, Department of Economics, Naamsestraat 69, B-3000 Leuven, Belgium; e-mail: geert.dhaene@kuleuven.be; and Koen Jochmans, Sciences Po, Department of Economics, 28 rue des Saints-Pères, 75007 Paris, France; e-mail: koen.jochmans@sciencespo.fr.
*Address correspondence to Geert Dhaene, University of Leuven, Department of Economics, Naamsestraat 69, B-3000 Leuven, Belgium; e-mail: geert.dhaene@kuleuven.be; and Koen Jochmans, Sciences Po, Department of Economics, 28 rue des Saints-Pères, 75007 Paris, France; e-mail: koen.jochmans@sciencespo.fr.
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Abstract

We calculate the bias of the profile score for the regression coefficients in a multistratum autoregressive model with stratum-specific intercepts. The bias is free of incidental parameters. Centering the profile score delivers an unbiased estimating equation and, upon integration, an adjusted profile likelihood. A variety of other approaches to constructing modified profile likelihoods are shown to yield equivalent results. However, the global maximizer of the adjusted likelihood lies at infinity for any sample size, and the adjusted profile score has multiple zeros. Consistent parameter estimates are obtained as local maximizers inside or on an ellipsoid centered at the maximum likelihood estimator.

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ARTICLES
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Econometric Theory , Volume 32 , Issue 5 , October 2016 , pp. 1178 - 1215
Copyright
Copyright © Cambridge University Press 2015 

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