Dhaene, G. and Jochmans, K.

Likelihood Inference in an Autoregression with Fixed Effects

Econometric Theory

Vol. 32(5) pp. 1178-1215 (2016)

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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Publisher's Link: https://doi.org/10.1017/S0266466615000146