Reducing bias of MLE in a dynamic panel model

This paper investigates a simple dynamic linear panel regression model with both fixed effects and time effects. Using "large n and large T" asymptotics, we approximate the distribution of the fixed effect estimator of the autoregressive parameter in the dynamic linear panel model and derive its asymptotic bias. We find that the same higher order bias correction approach proposed by Hahn and Kuersteiner (2002, Econometrica 70, 1639-1659) can be applied to the dynamic linear panel model even when time specific effects are present.