Estimation of random-effects dynamic probit models for panel data entails the so-called ``initial conditions problem''. We argue that the relative finite-sample performance of the two main competing solutions is driven by the magnitude of the individual unobserved heterogeneity and/or of the state dependence in the data. We investigate our conjecture by means of a comprehensive Monte Carlo experiment and offer useful indications for the practitioner.

Choice of solutions to the initial-conditions problem in dynamic panel probit models

Riccardo Lucchetti;Claudia Pigini
2020

Abstract

Estimation of random-effects dynamic probit models for panel data entails the so-called ``initial conditions problem''. We argue that the relative finite-sample performance of the two main competing solutions is driven by the magnitude of the individual unobserved heterogeneity and/or of the state dependence in the data. We investigate our conjecture by means of a comprehensive Monte Carlo experiment and offer useful indications for the practitioner.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11566/288872
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