class4-642-08

# class4-642-08 - Econ 642 Wednesday April 2 class 4 Econ 642...

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Econ 642, Wednesday April 2, class 4 Econ 642, Wednesday April 2, class 4 Robert de Jong 1 1 Department of Economics Ohio State University Robert de Jong Econ 642, Wednesday April 2, class 4

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Econ 642, Wednesday April 2, class 4 Monday’s lecture: independently pooled cross sections Today: genuine panel data: same individuals in the sample for T time periods Starting point: Wooldridge section 13.3, two-period panel data analysis; i.e. T = 2 Example data set: crime rate and unemployment for 46 cities for 1982 and 1987 t = 1 or 2; i = 1 , . . . , 46; T = 2; n = 46 Robert de Jong Econ 642, Wednesday April 2, class 4
Econ 642, Wednesday April 2, class 4 Simplest options: 1 regression using 1982 data 2 regression using 1987 data 3 regression using all data Problem with these options: likely omitted variable bias Omitted variable: variable indicating the time period the data was from General specification: y it = β 0 + δ 0 d 2 t + β 1 x it + a i + u it Robert de Jong Econ 642, Wednesday April 2, class 4

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y it = β 0 + δ 0 d 2 t + β 1 x it + a i + u it a i is referred to as fixed effect , unobserved effect , unobserved heterogeneity City crime rates model: crmrte it = β 0 + δ 0 d 87 t + β 1 unem it + a i + u it a i is the unobserved city effect
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class4-642-08 - Econ 642 Wednesday April 2 class 4 Econ 642...

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