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Optimal Shrinkage Estimation of Fixed Effects in Linear Panel Data Models

Soonwoo Kwon

arXiv 24 Aug 2023 · Econometrics · 9 citations (OpenAlex)

arXiv:2308.12485 · PDF · DOI · OpenAlex · Extracted main text

Abstract

Shrinkage methods are frequently used to improve the precision of least squares estimators of fixed effects. However, widely used shrinkage estimators guarantee improved precision only under strong distributional assumptions. I develop an estimator for the fixed effects that obtains the best possible mean squared error within a class of shrinkage estimators. This class includes conventional shrinkage estimators and the optimality does not require distributional assumptions. The estimator has an intuitive form and is easy to implement. Moreover, the fixed effects are allowed to vary with time and to be serially correlated, in which case the shrinkage optimally incorporates the underlying correlation structure. I also provide a method to forecast fixed effects one period ahead in this setting.

Citation extraction

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Most heavily cited references

The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.

ReferenceIntensityMentionsSectionsMain text
1Xie, X., S. C. Kou, and L. D. Brown (2012) SURE Estimates for a Heteroscedastic Hierarchical Model1.00073100%
2Chetty, R., J. N. Friedman, and J. E. Rockoff (2014) Measuring the Impacts of Teachers I: Evaluating Bias in Teacher Value-Added Estimates0.81142100%
3Gilraine, M., J. Gu, and R. McMillan (2020) A New Method for Estimating Teacher Value-Added, Tech0.73732100%
4Brown, L. D., G. Mukherjee, and A. Weinstein (2018) Empirical Bayes Estimates for a Two-Way Cross-Classified Model0.64422100%
5Chen, J (2022) Gaussian Heteroskedastic Empirical Bayes without Independence0.64422100%
6Xie, X., S. C. Kou, and L. Brown (2016) Optimal Shrinkage Estimation of Mean Parameters in Family of Distributions with Quadratic Variance0.64422100%
7Abaluck, J., M. M. C. Bravo, P. Hull, and A. Starc (2020) Mortality Effects and Choice Across Private Health Insurance Plans, Tech0.40511100%
8Bitler, M., S. Corcoran, T. Domina, and E. Penner (2019) Teacher Effects on Student Achievement and Height: A Cautionary Tale, Tech0.40511100%
9Brown, L. D. and E. Greenshtein (2009) Nonparametric Empirical Bayes and Compound Decision Approaches to Estimation of a High-Dimensional Vector of Normal Means0.40511100%
10Jiang, W. and C.-H. Zhang (2009) General Maximum Likelihood Empirical Bayes Estimation of Normal Means0.40511100%

Showing the top 10 of 19 scored citations.

Cited by, within the corpus

arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.

Citing paperIntensityMentionsSections
1Compound Selection Decisions: An Almost SURE Approach0.87452
2Individual Shrinkage for Random Effects0.73732
32cm Optimal Estimation of Two-Way Effects under Limited Mobility0.73732
4Empirical Bayes shrinkage (mostly) does not correct the measurement error in regression0.64422
52cm Large-Scale Estimation under Unknown Heteroskedasticity0.64422
6Assumption-Lean Shrinkage and Model Averaging for Spatial Parameters0.64422
7Empirical Bayes When Estimation Precision Predicts Parameters0.40511
82306.136810.40511
90.5 in Misspecification-Robust Shrinkage and Selection for VAR Forecasts and IRFs0.40511
10Branching Fixed Effects: A Proposal for Communicating Uncertainty0.40511