@inbook{15ffff972c6a4269991788a1257a5525,

title = "BAYESIAN ANALYSIS OF MISSPECIFIED MODELS WITH FIXED EFFECTS",

abstract = "One way to control for the heterogeneity in panel data is to allow for time-invariant, individual specific parameters. This fixed effect approach introduces many parameters into the model which causes the {"}incidental parameter problem{"}: the maximum likelihood estimator is in general inconsistent. Woutersen (2001) shows how to approximately separate the parameters of interest from the fixed effects using a reparametrization. He then shows how a Bayesian method gives a general solution to the incidental parameter for correctly specified models. This paper extends Woutersen (2001) to misspecified models. Following White (1982), we assume that the expectation of the score of the integrated likelihood is zero at the true values of the parameters. We then derive the conditions under which a Bayesian estimator converges at rate N where N is the number of individuals. Under these conditions, we show that the variance-covariance matrix of the Bayesian estimator has the form of White (1982). We illustrate our approach by the dynamic linear model with fixed effects and a duration model with fixed effects.",

author = "Tiemen Woutersen",

note = "Funding Information: I gratefully acknowlegde stimulating suggestions from Tony Lancaster. The Social Science and Humanities Research Council of Canada provided financial support. All errors are mine. Appendix A ",

year = "2003",

doi = "10.1016/S0731-9053(03)17011-9",

language = "English (US)",

isbn = "0762310758",

series = "Advances in Econometrics",

pages = "235--249",

booktitle = "Maximum Likelihood Estimation of Misspecified Models",

}