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Baltagi article on panel data using ε-contamination published in Journal of Econometricsec

Dec 31, 2017

Robust linear static panel data models using ε-contamination

Badi H.Baltagi, Georges Bresson, Anoop Chaturvedi & Guy Lacroix

Journal of Econometrics, December 2017

Badi H. Baltagi

Badi H. Baltagi


The paper develops a general Bayesian framework for robust linear static panel data models using-contamination. A two-step approach is employed to derive the conditional type-II maximum likelihood (ML-II) posterior distribution of the coefficients and individual effects. The ML-II posterior means are weighted averages of the Bayes estimator under a base prior and the data-dependent empirical Bayes estimator. Two-stage and three stage hierarchy estimators are developed and their finite sample performance is investigated through a series of Monte Carlo experiments. These include standard random effects as well as Mundlak-type, Chamberlain-type and Hausman–Taylor-type models. The simulation results underscore the relatively good performance of the three-stage hierarchy estimator. Within a single theoretical framework, our Bayesian approach encompasses a variety of specifications while conventional methods require separate estimators for each case.