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No 42:
A Poisson Ridge Regression Estimator

Kristofer Månsson and Ghazi Shukur ()

Abstract: The standard statistical method for analyzing count data is the Poisson regression model, which is usually estimated using maximum likelihood (ML). The ML method is very sensitive to multicollinearity. Therefore, we present a new Poisson ridge regression estimator (PRR) as a remedy to the problem of instability of the traditional ML method. To investigate the performance of the PRR and the traditional ML approaches for estimating the parameters of the Poisson regression model, we calculate the mean squared error (MSE) using Monte Carlo simulations. The result from the simulation study shows that the PRR method outperforms the traditional ML estimator in all of the different situations evaluated in this paper.

Keywords: Poisson regression; maximum likelihood; ridge regression; MSE; Monte Carlo simulations; Multicollinearity; (follow links to similar papers)

JEL-Codes: C30; (follow links to similar papers)

16 pages, August 1, 2010

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